Most owners of a small business will only sell their business once, often when it is time for them to retire, and so not many are familiar with the process when it comes to the sale itself. This can be a daunting experience, with many owners unsure of what to do and how to do it.
This blog covers some of the key points that a seller needs to be aware of, and is written under the assumption that a seller will use a Business Broker to facilitate the sale. An owner can of course sell the business themselves, but more often than not the time it takes to learn all of the elements required in a successful sale far outweigh the costs of using a professional.
How do I start the process?
Once you have made the decision to sell your business the first step is to contact a Business Broker. If you have never bought or sold a business before then the chances are you have never used a Broker. Do your research to make sure you find someone reputable and who has experience of selling businesses similar to yours.
A Business Broker will come to meet you (either away from your place of work or outside of hours so the staff do not know about any potential sale at such an early stage) and will answer any questions you may have.
The Broker will request some basic financial information from you that will enable them to provide a valuation of the business. Once a sale price has been agreed upon the Broker will then ask that you sign a Listing Agreement that outlines the terms and conditions under which both parties will operate during the agreed time period (usually 12 months).
What happens next?
In order to prepare all of the required marketing materials for the business, your Broker will now require more detailed financial information, a history of the company, information about staff, operating hours, the lease etc.
The Broker will then discreetly advertise your business across a range of marketing channels in order to attract the interest of potential buyers. When a potential buyer contacts the Broker they will firstly have them sign a non-disclosure agreement to protect the confidentiality of your business and will then disclose the presentation they have prepared, which is often known as a Confidential Business Review, or CBR.
Meeting potential buyers
If a buyer has reviewed the CBR and remains interested in the business, the next step is usually for the buyer and seller to meet. This meeting is arranged by the Broker and takes place outside of operating hours – as previously mentioned so that the staff are not alerted to a potential sale.
The meeting gives both parties a chance to get to know each other better and ask any questions they may have.
Many times this meeting is seen as a chance for the buyer to decide if they would like to make an offer, but at the same time it gives the seller the opportunity to decide if this is the kind of person they would like to take over their business.
If the buyer continues to show an interest then the next stage is for an offer to be made, and this will usually involve negotiation between the parties. These negotiations are facilitated by the Broker and can allow for the Broker to play the ‘bad guy’ if need be so that the relationship between the buyer and seller is not directly affected. Both parties will have to work together during the transition period and so it is best for all concerned if there is no animosity between the two.
At times negotiations can be simple, and in other instances these can be more complex and time consuming, but the ultimate aim is to reach a deal that is acceptable to all involved.
Signing the contract
Once an acceptable offer has been agreed upon the Broker will complete the contract (in the State of Florida this is a standard document that simply allows a Broker to fill in the blanks as they are not allowed to practice law) and copies will be given to both parties to review with their own advisors and sign.
A deposit is typically required at this stage and is held by the closing attorney.
The contract will specify a time period during which due diligence can take place. For smaller deals this is usually around 14 days, with this timeframe being extended for larger, more complex transactions.
The due diligence period is when the buyer and their advisors will verify that all of the information provided is correct. They will want to see detailed financial information, copies of leases, supplier contracts, employment contracts etc. and will review all of these documents in detail to make sure the business is as it has been presented.
This stage of the process is where a number of deals will fall down and so it is vital that as a seller you are providing your Broker with accurate and up to date information from the outset of the sale process.
Removal of contingencies Before the deal can be closed any contingencies in the contract must be dealt with and removed. For example, a deal may be dependent upon landlord approval of the buyer, without which the transaction cannot be completed and so it is important that any such issues are addressed in a timely manner so that there are no last minute surprises.
Once all contingencies have been removed and the balance of the funds due has been deposited into escrow then the deal is ready to close. This normally takes place at the attorney’s office and will involve both buyer and seller, as well as their brokers, and typically takes no more than an hour.
Both parties are required to sign all of the relevant legal documentation, after which time the seller receives their funds and the buyer becomes the legal owner of the business.
The final stage of the process is the post-closing period where the seller provides training to the buyer and assists in the hand over of the business. For small businesses the training period is usually two weeks, with this period being extended for larger deals.
The seller will introduce the buyer to the staff, key suppliers, contractors etc. and will be on hand to demonstrate every aspect of the business during the training period.
At the conclusion of the training the sellers responsibilities have ended and the buyer can begin to put into place the plans they have for the future growth and development of the business.
For more information about selling a business call me on 407-989-6893 or visit www.theharrisongroupfl.com