Five Phases of the Business Sale Process
Article originally published on August 21, 2010 — North Bay Business Journal
Remember the story about the chicken and pig that walk past a diner advertising “bacon and eggs” for breakfast? The chicken enthusiastically endorses the menu. The pig replies, “For you it’s all in a day’s work. For me it’s total commitment!”
Most company owners already understand that selling a business on their terms requires commitment to a cohesive process. Others try and fail to sell, and learn the hard way that selling is more complex and fraught with pitfalls than they realized. A systematic business sale process improves your price, terms and probability of sale, and reduces your time, stress and financial risk. Here is a brief outline:
Phase 1. Evaluation & Planning
Commit to having the business objectively evaluated by a valuation expert. A reliable opinion requires significant due diligence, research and analysis of financials, assets, markets, relationships, contracts, systems, and more. The expert acts in concert with your legal and financial advisors to provide essential answers that allow you make the best decisions. This phase is critical to deciding the right time to sell — whether today or 1-5 years from now.
You’ll have answers regarding:
1. Most probable selling price
2. Likely deal structures
3. Target buyers
4. Marketability and potential obstacles
5. Strengths and weaknesses, value drivers and detractors
6. Financial gaps, wealth preservation and maximizing after-tax yield
7. Specific ways to build value, short and long term
Phase 2. Marketing Preparation
When the time is right to sell, commit to presenting your business to prospective buyers convincingly, in writing, with supportable facts. Since confused minds always say “no”, a thorough deal book allows buyers to grasp your business opportunity, affirm their interest and make strong offers. A “blind” summary will be extracted for initial contact with target buyers. While your M&A Advisor produces the book and develops a list of buyers with strong potential synergies, you’ll wrap up recommended business preparations that enhance value, marketability and transferability.
Phase 3. Confidential, Strategic Marketing
A direct marketing campaign is aimed at target buyers, using multiple communication methods. A net is cast deep and/or wide to produce buyers, based on for your business type and circumstances. Deal books are released to candidates that demonstrate financial ability and sign a confidentiality agreement. Your Advisor schedules site visits for a short list of finalists, where you get to know each other and ask in-depth questions.
Phase 4. Negotiations & Deal Structuring
Now comes the interesting part, and this is not a one-size-fits all process. Every transaction is unique. Your Advisor endeavors to obtain multiple offers, possibly through a controlled auction process, discusses their pros and cons with you and helps you select the lead horse. The Advisor guides you through negotiations, in concert with your tax and legal advisors. Experience is critical.
Phase 5. Due Diligence & Closing
With the deal points are settled, buyer and seller due diligence commence, while financing and third-party consents are arranged, and definitive agreements and closing documents are prepared. This is where phases 1 and 2 pay off. In today’s business environment, expect a financial audit, and expect the buyer’s experts to investigate government compliance, environmental issues, insurance claims, key relationships, contracts, equipment, intellectual property rights, and more. Your Advisor coordinates work flow and keeps the deal on track.
Selling a business is often a business owner’s largest financial transaction. To realize the reward you deserve for your years of hard work and sacrifice, be prepared, commit to a cohesive selling process and engage professionals that allow you to focus on business performance at a time when it matters most.
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Al Statz is President of Exit Strategies Group, Inc., a business brokerage and valuation firm based in Sonoma County. He can be reached at 707-781-8580 or alstatz@exitstrategiesgroup.com.
The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including Marin and the wine country of Sonoma and Napa counties.
