Sell your business: 6 steps, 6 months

GUIDE TO SELLING YOUR BUSINESS: 6 STEPS, 6 MONTHS

This 6-step checklist helps you transfer your business into new hands so you can ride off into the sunset with your legacy in good hands, often in 6 months. The process involves: 1) Prep 2) Value 3) Attract 4) Negotiate 5) Close 6) Transition

1-PREP
Are your documents ready for a buyer’s due diligence review?
You need to present an essential set of information to attract the buyer. Then, during due diligence, the buyer may ask you for additional documents. Having these documents ready makes the buyer more confident in you and your business: 

• Income statement/P&L (3 years).
  Also run a special P&L for the last 12 months by month

• Asset/Equipment List (with value, if known) 

• Balance Sheet (current)

• Current Inventory (Inventory Guide)

• Employee List & Responsibilities (remove employee contact info)  

You may also be asked for a few additional items, but the list above should get you well into negotiations. If you do not have requested records, offer a replacement doc with similar information rather than denying the info outright. 

2-VALUE
Valuations are not hard or expensive

One myth is that you need to pay thousands of dollars for a formal valuation. These formal valuations can be useful for estate planning or legal matters, but when it comes to selling, your asking price should attract buyers in an open market.

One of the most important things to calculate is “how much is the owner (you) taking home?”  Often called EBITDA or Cash Flow, there are some adjustments that are made to your earning for the past 3 years. This is then generally multiplied by a multiplier for the industry to arrive at a foundational value. Then the wholesale value of your saleable inventory is added and will be assessed shortly before closing.

 3-ATTRACT
Apply a ripple approach to your outreach
Start with your closest affiliations to see if there is interest. The approach you take to this will be to treat your retirement as an eventual decision, as not to worry your employees.

• Employees: Employees have advantages in SBA loans. Banks love employee purchases. Approach with: “You know Beth, I won’t live forever. I wonder if you’d even consider taking this business on one day with my support in a transition.” Many consider an ESOP (Employee Stock Open Purchase), but only a few find this to be a fit.

• Vendors: Partners in your industry know your business and may have the advantage of understanding the market or city, may see strategic value and see opportunity to grow. “Joe, you’ve been supplying our company for 10 years now and you seem to really like this business. Someday down the road, would you consider owning it?”

• Competitors: This is often where an intermediary is valuable. You don’t want your competitors to know you are selling or they may try to poach your employees and customers. Here, a letter from a third party that does not disclose your identity might be appropriate.

• Anonymous listing on the open market: Depending on your urgency, you may wish to do this right away, or wait until you’ve exhausted your other options. The most common listing site is www.BizBuySell.com where private parties and brokers place ads using a standard template which is also helpful to see what information to convey.

4-NEGOTIATE
Negotiate as a partner not an opponent.
The best outcomes tend to come from parties who work together to arrive at a solution. Fortunately, there are many negotiation tools that we have learned over the years to resolve the gap always found between buyers and sellers. Nearly every aspect of a deal is negotiable so there are many levers to pull. Most importantly as a seller, you need to know that you have options. One buyer should not be your only choice. You are a better negotiator when you have a backup.

5-CLOSE
Address future arguments up front, even if you think you’ll never need it.
Give an attorney or broker your hand-prepared negotiation to save yourself some money on fees. They will then prepare the documents as needed by the State, County, and Federal agencies. Not all attorneys or brokers have experience closing businesses and there are some unique situations that may require expertise.

6-TRANSITION
Treat the transition as a temporarily partnership. Treat employees with care.
Typical is 2 weeks of day-to-day operations for simpler businesses; 1-3 months for complex businesses.  You may wish to offer a short initial time for training (say 5 days), then offer a “batch” meeting once a week to clear out remaining questions and compress that into a shorter time commitment for you.  The buyer will keep a list of questions for you and ask them all at once.  Alternatively, you can be a contractor for the buyer on a paid engagement after the sale for as long as you wish.  Employee notification is a key aspect of this transition. A best practice is to wait until the day after closing when Buyer/Seller notify the employees in person, and they see that you are committed to a smooth transition with minimal disruption.  The Buyer will issue new Employee Contracts and your contracts will be terminated.  Assure employees that this does not mean they are fired!

Working with Paulson Exchange

We have a number of ways to work with Sellers: Full Service where we handle everything for you or Do-it-yourself.
See the fee differences.