Framework of a Business Sale

Although there are many variations of the sale process, the following is the general framework for a successful sale:

1. The seller decides and commits to selling the business.
2. If the seller will use advisors, the seller meets with them to make them aware of the intent to sell the business.
3. The relevant information is gathered and analyzed to accurately indicate the available cash flow from the buyer’s perspective.
4. The value and subsequent asking price are determined. The preliminary tax consequences are evaluated and the optimum deal structure is established.
5. The seller evaluates the use of a broker or investment banker
6. The documentation that will be shared with prospective purchasers is prepared.
7. The seller cleans up the business to make a great first impression on the buyer.
8. The business is posted on websites, ideal purchasers are directly contacted, and inquiries begin.
9. Buyers tour the business or meet at a location that preserves confidentiality to discuss preliminary questions.
10. Offer(s)are received and negotiations begin until a mutually agreed document is produced or the deal dies.
11. Application for preliminary financing begins.
12. Due diligence begins
13. Contingencies are removed.
14. Negotiations of the purchase agreement are completed
15. Exhibits to the purchase agreement are prepared
16. All parties execute the mutually agreed purchase agreements.
17. Financing is secured
18. The formal closing occurs and the deal is funded (if external financing was required)
19. Post-closing adjustments are made (if necessary)
20. Any post-closing disputes are resolved

Like any process, there is an order of things. This order is in a logical format that will enable you to confidentially share your business with the greatest number of buyers when you operate from a position of control. As the saying goes, “The one who makes the rules wins.”

This process aims to phase out information that enables you to control the flow of information. You are ultimately trying to mitigate the potential exposure (confidentiality, time, and money)of wasted time on a buyer. The buyer will undoubtedly come in wanting to learn everything s/he can about the business as quickly as possible. Their urgency and the prospect of losing this deal will quickly become your enemy.

You must resist the urge that this will be your only buyer. It may be, but you cannot let your buyer know. The buyer must believe that a line of equally motivated and qualified buyers is anxious to buy your business. This part of the reason why a broker is a good resource because the buyer will never know if the broker has one buyer or ten buyers because s/he is just doing the job of introducing the opportunity to as many buyers as he can because he knows that 80% of the buyers introduced to an opportunity will never buy it.