We started off this discussion in the last blog with preparation, so assuming you have a business that can be sold, we will move onto the next step which is the execution of the sale.   There are plenty of books on selling your business so I am only going to grossly summarize these steps.  The intent here is to accept that you are a SBO, who has very limited time, and you want the Cliff Notes version of the selling process.  The intent here is to provide a 30,000 foot high flight of the process so you can see the big picture and see from the beginning to the end.

The first step is to find a buyer who not only can afford to pay you but also will be a good fit for the Company.  I don’t mean to understate this step because in my opinion, this is by far the hardest part and where most time is spent in the process.  Obviously, just like selling your house, you can either sell it yourself or hire a professional.  If you chose to DIY (do-it-yourself) then you will need to network, locate potential buyers, and list it online.   Most SBO’s start here because that’s just who we are.  The one personality trait… consistent in entrepreneurs is their self confidence, so give it a try if you want but just know that there are other options.  If, on the other hand, you chose to hire a professional, then generally the professionals available are Business Brokers, Merger and Acquisition (M&A) Advisors, and Investment Bankers.  The difference between them is the size of companies they represent and the services they provide.  As in all service companies, it is usually more about the person you are working with than the title, so ask around, interview, and research before you hire someone.

Once you have an interested buyer then the negotiations come next.  In a real estate transaction this happens on an offer/counter offer document, but in a  business transaction, it is often handled in a LOI (letter of intent).  In the LOI everything is written down from the price and financing, to the date of close and details to the non-compete.  If you are doing this yourself then write down everything you have both agreed on so there are no misunderstandings.  Once the LOI is signed by both parties then enter escrow with deposit money and the due diligence process starts.

The due diligence process is for the buyer to verify and validate everything the seller has said.  It is the same as buying a used car, when you look under the hood, check the engine, hire a professional to do some tests and generally make sure that everything passes the initial inspections.   Most areas of focus are the financials reporting/process, customer base, sales back log, employee job descriptions and skills, and any fixed assets that the Company owns.  Then they look at the liability side and review leases, contracts, any claims. and debt financing arrangements.

During the due diligence evaluation often the attorney’s are writing up the purchase and sale agreement and required supplemental supporting documents.  These documents use the outline of the LOI and put substance and legal definition to them.

Finally, the buyer’s financing is pulled together as you get closer to the close.  SBA supports many SBO purchases and they have it down very well.  There will be additional documents required by both the seller and buyer since they bank is lending on the Company and buyer strengths.

At the end of escrow and with the SBA lender approval, you all meet together and sign the legal and financial documents.  The complete process of listing and selling your business will take 6-18 months so be prepared.  Once again this is a general overview and exceptions do apply, but be prepared and understand the steps.

This entry was posted on Wednesday, May 13th, 2009 at 9:03 pm and is filed under Sell Your Business, Exit and Answers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.