What are the steps I’ll need to take to sell my business?
It’s a complicated process but you can simplify the procedure with a plan and increase your chances for a successful sale by properly executing each step of that plan.
The Process of Selling a Business — The Seven Steps
- Prepare a confidential information memorandum (CIM). A CIM is a written overview of your business that answers key questions nearly every buyer will ask.
- Confidentially market your business. When selling your business, determine if the ideal buyer is an individual, competitor, or private equity firm; then create a plan that’s customized to attract your targeted buyer.
- Screen buyers and email them your CIM. Most buyer inquiries come through email. Include basic information about your business and ask the potential buyer to sign a non-disclosure agreement (NDA) before you send them your CIM.
- Share information and meet with qualified buyers. Share your CIM and normalized financials with interested buyers. If the buyer asks a few follow-up questions, answer them. If the buyer sends you a long list of questions, set up an in-person or phone meeting.
- Negotiate and accept an offer. Ask the buyer for a letter of intent (LOI). Be persistent. If the buyer is serious, they will provide one. But make sure the buyer is financially qualified before you negotiate.
- Manage the due diligence process. Due diligence should be a routine process if you are adequately prepared. Stay on track, be organized, keep a checklist, and keep the momentum going.
- Handle the closing. Begin preparing for the closing weeks in advance. Keep the momentum moving and keep all parties organized with checklists and timelines.
For a complete overview of the process of selling a business, read on.
Step One: Prepare a CIM
A confidential information memorandum (CIM) is a written overview of your business that answers key questions nearly every buyer will ask. Preparing a CIM is one of the first steps to selling your business. It’s shared with buyers after they sign a non-disclosure agreement (NDA). Preparing a CIM is the foundation of the entire process of selling your business. Everything else depends on this critical step.
- A CIM significantly reduces wasted time with buyers.
- A CIM ensures a smooth process.
- A CIM can increase the value of your business and may reduce post-sale litigation.
Ideally, the CIM should be prepared by a professional intermediary who understands what buyers look for when buying a business. It can be difficult for you as the business owner to objectively assess your business, while a professional has the necessary perspective and experience to evaluate your business as an outsider.
Step Two: Confidentially Market Your Business
Identify your ideal buyer
When preparing your CIM, you will identify the ideal buyer most likely to buy your business. Knowing your ideal buyer requires a full understanding of your business and industry.
When selling your business, ask yourself if the ideal buyer for your business is an individual, competitor, or private equity firm.
If an individual, does the buyer need experience in your industry?
- If so, your business should be confidentially marketed in trade publications and other media targeted at business owners and investors in your industry.
- If not, you can employ a broader range of marketing tactics to attract buyers.
Create a plan to attract your ideal buyer to sell your business to.
Once you have identified the ideal buyer type for your business, you should design a marketing plan to attract those types of buyers. To sell your business quickly, don’t rely on one method alone to attract buyers.
There are three general ways to find buyers when selling your business:
- Approach them through direct campaigns. This tactic works best for middle-market businesses whose likely buyer is a competitor or private equity firm. You should compile a list of names and contact information for targeted potential buyers. Ideally, a third party should contact the potential buyers so that you can maintain anonymity.
- Confidentially market your business for sale throughout your industry. This includes advertising in trade publications, magazines, and other media that target your industry. This may be the best option for businesses in certain industries that require a buyer with specific experience, such as medical, law, engineering, and other professional services. A third party should field any inquiries to maintain your anonymity.
- Confidentially market your business for sale outside of your industry. M&A advisors most commonly use this method, especially including print and web media. There are approximately a dozen popular web portals specializing in businesses for sale. To generate the most exposure possible, advertise on as many of these sites as possible.
Step Three: Screen Buyers and Email Them Your CIM
The process for screening buyers when selling your business
The next step is to screen buyers. Most buyer inquiries come through email. Typically, serious buyers will ask additional questions and want more information on your business. This is normal. Include basic information about your business, and ask the potential buyer to sign a non-disclosure agreement (NDA) before you send them your CIM.
The Non-Disclosure Agreement (NDA)
Lead the buyer to the next step, which is to sign your NDA (preferably electronically). Your email should be short and straightforward, with a line that mentions that you have a complete CIM available for interested buyers who sign an NDA.
This approach will immediately eliminate people who are not serious about buying a business. Buyers who aren’t sufficiently motivated will not sign an NDA.
Your NDA should be simple. Don’t make the mistake of asking someone to sign multiple documents and fill out lengthy forms before they ever see any of your business’s information. At this point, the goal is to screen buyers based on minimal criteria.
Step Four: Share Information & Meet with Qualified Buyers
Email your CIM to buyers you determine are qualified.
We recommend calling the buyer along with sending the email; make it a quick, friendly call to tell them that they can contact you with questions.
Wait for interested buyers to call.
Don’t chase buyers down. If a buyer likes your business and is serious, they will follow up with you.
Ways you can handle buyer conversations when selling your business.
If the buyer emails you a few follow-up questions, answer them. If the buyer emails you a long list of questions, set up an in-person or phone meeting.
If the buyer insists on receiving additional information without meeting (giving responses such as, “I am too far away,” or “I am too busy,” or “I just need a little more info”), then ask the buyer to submit additional information to you such as a resume, financial statement, proof of funds, or credit report; or a buyer profile and financial statement if they are a corporate buyer.
As you provide more information, screen the buyer more thoroughly.
Screening should be a gradual, natural process, although there are no hard-and-fast rules.
How many meetings is enough?
Circumstances differ, but most serious buyers will make an offer after meeting between two and three times. Use your judgment as you meet with buyers and determine their level of commitment.
Step Five: Accept a letter of intent (LOI)
Have a professional involved in the process of negotiating the offer to facilitate the process and maximize the price.
Ask the buyer for an LOI.
Be persistent. If the buyer is serious, they will make one. Focus on establishing an agreement between both parties on key terms — then draft the offer.
Make sure the buyer is financially qualified before you negotiate.
Ask the buyer to submit proof of funds along with their LOI.
If you accept an LOI, be sure that all due diligence is mutual.
You have a right to inspect the buyer’s background, financial condition, and more, allowing you to retreat from the offer if you find something problematic with the buyer.
During due diligence, be clear about the buyer’s expectations. Over half of deals die during due diligence. Why not know how stringent the buyer’s requirements are before accepting an offer? Ask for a due diligence checklist.
Be organized for due diligence. Use the checklist and prepare copies of the necessary documents.
Step Six: Manage the Due Diligence Process
Due diligence should be a routine process if you are adequately prepared. Stay on track, be organized, keep a checklist, and keep the momentum going.
At some point, the power will shift to the buyer. Buying a business is not without risk. A buyer can only minimize risk; risk cannot be 100% eliminated.
Offering financing for the sale can offer you some leverage during due diligence because you can assure the buyer that you are being fully transparent. Eventually, any misrepresentations you made would surface, and the buyer may be able to use those against you by offsetting any damages against the note (called a “right of offset”).
Step Seven: Closing the Business Sale
Closing the sale should also be a routine process. The key to success, again, is preparation.
Prepare for the closing weeks in advance. Keep the momentum moving and keep all parties organized with checklists and timelines. Take action daily toward the closing. We highly recommend that any business owner who has not managed the process of closing a business before use professional help.