We discussed buying a printing business last month. But what about selling? Many are not exactly sure as to the process. Here the steps.
1. Be Prepared
This is a big emotional step so be sure you want to sell. Do realize selling is a process, not an event. It could take over a year or just a few weeks. In the US it takes slightly less than eight months to sell the average business.
Continue to operate and grow your business—allowing it to deteriorate reduces its value.
2. Confidentiality is King
You will probably want to work with a third party—often a business broker—for reasons of confidentiality. This is critical. If it goes public that your company is for sale you will be at risk with your clients, vendors, and employees. Even worse, your business will decrease in value by the day.
Your business should be advertised as a blind ad, requiring a buyer to sign an NDA—a non-disclosure agreement—legally binding him to secrecy before any identifying information is revealed.
3. The Numbers
You need to put a price on your business. It is wise to have a broker do a market valuation. Many will do one at no charge. Accountants, lawyers, and bankers all have opinions, but you need to know where you stand in the marketplace.
Price it reasonably. Over-priced businesses only help to sell other businesses. Offering some seller financing can be advantageous; it can be very difficult for a buyer to get a loan on any business. In addition, offering financing tells the buyer you believe the business is profitable enough to pay the note. The collateral for the note is the business. If the buyer defaults, he loses the business and his entire investment.
The better the financials, the more likely you will get serious consideration. Above all, be honest—even leaning to the conservative side—in determining income (profit). The price of a substantial discrepancy in the numbers may be your credibility and a buyer.
Revealing your private financial information can be unsettling, but remember the buyer is bound to confidentiality and he wants to know what he is buying.
4. The Buying Process
Things usually start with a buyer-seller meeting. This helps the buyer get a flavor of the business and its operation. You want to avoid talking price at these meetings. If there is interest, there will be more meetings. Remember, the best person to sell your business is you. Be open, honest, and friendly—the more the buyer likes and trusts you, the more likely an offer will be forthcoming.
An offer may begin as a letter of intent—with some contingencies and a proposed closing date—before becoming a contract. At contract point there will also be an earnest money deposit (EMD), usually equal to a percentage of the sale price of the business, and held by a neutral party.
You can accept, reject, or counter any offer. A countering implies that you accept some or most of the buyer’s offer, with certain exceptions. It is very important to counter offers you find unacceptable because buyers often start low, fully expecting they may have to increase their offer substantially. In addition, you do not know when or if a next offer may come.
If you are close to a deal you may meet with the buyer to iron out differences. In negotiating, try to put yourself in the position of the buyer, holding your ground on key points, while expressing yourself tactfully.
5. The Big Finish
An accepted offer moves the process to the due diligence stage. You must now deliver all documents the buyer has stipulated in the agreement. In simple terms, due diligence is a process in which the buyer has a set period to review the documents and verify that the business is what you purported it to be. This is usually a financial issue. If the buyer completes due diligence, it may be time to contact the landlord for approval on the lease.
You will likely close at the escrow company office or closing entity. The escrow company will have completed searches for lawsuits, liens, and taxation issues. With funds transferred, you will receive a cashier’s check and the buyer will receive a bill of bale, free and clear of all liens and encumbrances.