The timeline and details of how to sell a business can vary quite a bit depending on your business’s industry, location, and size — but the process of how to sell a business is fairly consistent. The biggest impact on the sales process is your choice between involving a business broker or navigating the sale yourself. Here, we will outline the process of how to sell a business and the potential impact of choosing the Business Broker vs. DIY route.
1. Confidentiality: Broker vs. DIY
When selling a business, confidentiality is crucial. Why? If customers hear that your business is for sale, it can cause them to doubt your company’s ability to serve their needs moving forward, and they may begin to shop around. Likewise, if employees hear that you might be selling, they may question the stability of their employment and begin to look elsewhere. Competitors can also try to use the information to sell against you. Working with a business broker is the best way to maintain confidentiality while selling a business because the broker can reach out to prospects or field inquiries from potential buyers without ever mentioning your name or the name of your business.
2. Valuation: Broker vs. DIY
A business valuation is the most important piece of financial information you can possess regarding your business, even if you are not planning to sell anytime soon. Bottom line, whether or not you plan to use a business broker for any part of the selling process, starting with an accurate valuation really demands a professional. With all of the factors involved, it is nearly impossible to accurately determine the value of your own business. A key factor in selling a business is to verify that your company meets current lending guidelines prior to going to market. A business valuation that can hold up to the scrutiny of a lender’s pre-screen will further ensure a successful outcome.
3. Marketing: Broker vs. DIY
Marketing is an important part of how to sell a business. Unless you already have a buyer lined up, you will need to market your business to potential buyers. While it can be a challenge to market your business while also running your business, there is another factor to consider. As mentioned above, marketing your own business for sale presents a serious confidentiality challenge.
Here, a business broker can be beneficial on many levels. At Viking, when we package a business for sale, we gather all necessary information into a short profile that provides pertinent details on the business’s greatest differentiators and assets without disclosing any sensitive details or names. We use that summary profile and other materials to market the business to our own network of thousands of prospective buyers. We also market the business via the internet, strategic direct mail pieces, newsletters, and more, going to great lengths to keep the identity of the business confidential.
4. Buyer/Seller Meeting: Broker vs. DIY
Once you have identified a serious prospective buyer, you will set up a meeting where you can get to know the buyer, explain your business, and allow the buyer to ask questions. Typically, you will keep the discussion at this meeting fairly high level, relating to company history, strategy, and nature of the business. (Reviewing smaller details will be handled post-offer, during the due diligence step.) Sometimes a prospective buyer will want to visit your office or see equipment and facilities. Many buyers also wish to perform a more detailed review of the business’s financials after the meeting; but, remember that no offer has been made at this step, so be mindful of your need for confidentiality.
A professional advisor or broker is incredibly helpful at this step. At Viking, we vet potential buyers through our pre-screening process, ensuring a buyer is serious and financially capable of purchasing your business before ever presenting them to you for consideration. Your broker is then present at the buyer/seller meeting. If the buyer wants to see your business’s facilities, the broker can help you schedule this sort of visit “after hours.” If the buyer wishes to see more detailed financials, we insist that any financial review is done only while in Viking’s office.
5. Offer and Negotiation: Broker vs. DIY
A formal offer to buy your business will normally be presented as a “Letter of Intent” (LOI) or an “Offer for Purchase.” This document outlines the offer details, including the offered purchase price, the payment terms, the training and transition period, any required employment non-compete terms for you (the Seller) and potentially key employees, and any other conditions related to the offer. You will need to thoroughly review the details and then accept the offer, reject it, or negotiate any aspect of the offer.
A broker will meet with you to explain the offer and discuss its various components in detail. The decision to accept, reject, or negotiate is yours; but your broker will offer an expert opinion and guidance to help you make the right decision for you.
6. Due Diligence: Broker vs. DIY
After you accept an offer from a buyer, the buyer uses the time prior to the closing to perform their due diligence. Due diligence normally involves obtaining detailed financial and bank statements, copies of leases, and copies of contracts you may have with suppliers or customers, etc. The objective of the due diligence period is to confirm that your business was accurately represented to the buyer prior to them issuing their offer letter. Most buyers are not looking for minor discrepancies, but rather only for material differences or “surprises” that were previously unknown to them. The length of this period (and level of detail) can vary greatly and is generally dictated by the buyer. In our experience, it typically lasts between 21 to 45 days.
During the due diligence period, a good business broker will counsel you and assist wherever possible. Another benefit of having a broker is that, while most deals that get to due diligence proceed through to closing, we also realize that your business is not sold until the sale has officially closed. So, even as the prospective buyer performs their due diligence, we continue to collect new inquiries in order to keep the sales pipeline open. In this way, our team of advisors helps guide you through all aspects of the due diligence and pre-closing process.
7. Closing: Broker vs. DIY
After due diligence and buyer financing are completed, closing documents must be drafted for the close of the sale. With the number of agreements and legal documents involved, some form of legal and financial counsel is advisable even if you have chosen a DIY sale.
Viking’s brokers remain with you during every step in the process, including closing. We can recommend legal counsel (attorneys) and financial counsel (accountants) to help you with the various contracts and legal documents and to ensure you minimize the tax impact of the sale. Your broker will also ensure that you collect your funds and have all of the documentation you need when you leave the closing table. Normally, the time from offer acceptance to closing (including due diligence, drafting of sales contracts during pre-closing, and the closing itself) ranges from 60 to 75 days, but can vary of course.
When debating the use of a Business Broker vs. DIY for selling your business, consider this: if you want to sell your business for top dollar, your sale is worthy of professional guidance. Our business brokers have decades of experience and know how to sell a business. A broker can help you avoid common mistakes, give you actionable insight on how to maximize the value of your business, and guide you through the process without the confusion or chaos that can haunt a DIY sale.
If you are thinking of selling your business, we can provide an estimation of what it would likely sell for and how long it might take to complete the transaction. Contact us today for a no-cost consultation.