About Selling a Business
What is the Process?
Selling your company is nothing like selling commercial real estate. Confidentiality is key. No one, including vendors, customers and staff should know that the business is for sale, unless of course you feel they may be an acquisition candidate. Here is a general timeline for reaching the closing table:
1. Make the Decision to Sell – 1 month
- Make the Decision to Sell – 1 month
2. Assemble your team – 2 weeks
- In addition to , your CPA, attorney, and personal financial planner should all be involved from the beginning. There will be tax and legal (in addition to the obvious) financial ramifications from the sale that must be determined and planned-for in advance.
3. Determine the value of the business – 2 weeks
Depending on the size and type of your company, we will need to perform a detailed appraisal to arrive at the and/or of your business.
- Recasting: To change the company financial statements from tax basis to economic terms. All businesses have add-backs; income and expenses that are either personal, non-recurring, or non-operating (depreciation) that must be accounted for in the appraisal. All of these items must be removed to arrive at true economic earning power of the business. A site visit and client assistance is usually required in this step.
4. Review the Appraisal and decide on the asking price – 1 week
5. Clean up the balance sheet – 1 month
- Identify uncollectible account receivables and outdated inventory. If a potential purchaser uncovers these items during due diligence, the potential purchase may think that you are hiding things and lose interest in the transaction. If your company has surplus assets or the assets are not fully used, take appropriate action now. The selling price is not likely to reflect these assets. Remove personal items not related to the business. Adjust for correct FF&E (Furniture, Fixtures & Equipment). If the balance sheet is not cleaned up until due diligence, it could kill the deal. Examples include: lease escalation clauses, deposits from customers, and legal threats.
6. Prepare marketing materials and action plan – 2 weeks
- The first step is preparing a , which will obviously require your input. The CBR is very comprehensive, including an Executive Summary, Company History, full detail of products/services, Marketing and Sales, Operations, Facilities, Management and Staff, Recasted Financial Statements and much more – usually 15 to 20 pages long. Once we complete the CBR we will send to you for review, modifications, and final approval.
- Submit a Web Blurb to all registered buyers in the database (currently 2,200). The Web Blub is a one-page teaser that touches on all the top-level selling points of your company. With your assistance we put together a list of potential acquirers, including vendors, customers, competitors, friends, private equity groups, synergistic companies operating within your industry, etc.
8 Week to 1 Year:
- a. This is a very wide range because it is now up to the prospective buyer to decide whether your company is attractive enough to pursue. Generally, we will receive numerous inquiries from our Web Blurb. Following is the process on managing inquiries:
- Ask for a completed
- Determine if the candidate is qualified – if the candidate appears to be in your industry, we will send you the name and ask permission to send the CBR out
- Send the CBR to the candidate – update the database for tracking the candidate
- Answer preliminary questions and potentially arrange a conference call with the client
- Facilities tour with the candidate
- and negotiate an Agreement
- Post-LOI Due Diligence by Candidate which will include more Client meetings
- Candidate secures financing
- Please be prepared to answer critical questions both verbally and in writing. The CBR should answer many questions such as: Are the add-backs justified? Is the business dependent on the owner? How much is involved? What is the ? What are the ? Why is the seller selling the business?
Recognize Deal Breakers:
Many deals do not happen even after there is an agreement on price. Examples include:
- Due diligence uncovers an undisclosed material fact that should have been disclosed.
- Seller has higher than anticipated taxes.
- Seller has second thoughts about selling (Seller’s Remorse) – it happens often, so please be sure you are ready to pull the trigger as we WILL find you the right Buyer.
- Because information is slow in getting to buyer (most likely because it was not prepared beforehand), the buyer walks away.
- Buyer cannot finance the deal.
- The buyer and seller do not get along. Emotions are not kept in check.
- The details of the definite purchase agreement contain unacceptable details. These may include: reps and warrants, collateral requirements for note, and personal guarantee requirements.
- The actual financial results for the quarter/month right before closing are not as good as expected; consequently the buyer gets cold feet and withdraws.
- Professional interference (Ex. Seller’s CPA may lose a long term client if client sells.)
- More reasons than can be listed here