Curious about what steps to take to sell your business and what to expect? Here's a timeline to follow.
Up to this point in the selling process, you could manage your sale timeline pretty much on your own terms. Based purely on your own schedule you could decide when to start the process, when and how to prepare your business, and when to start advertising to reach prospective buyers.
But the minute the first prospective buyer responds to one of your ads, the days of taking action on your own terms are over. Simply put, time delays kill the enthusiasm of prospective buyers.
The following points will help you better understand what's involved in the buyer-seller communication and negotiation process, how long most sales take, and why immediate, focused response is critical from here on out.
Step 1. Get clear about the timeframe of typical small business sales.
Even with the most efficient and effective communications, be prepared for your business sale transaction to take time. If you've got a buyer ready and waiting for you to say, "let's make a deal," your sale could sail through in a matter of months. That's a best-case scenario. If you're holding out for an extraordinarily high price - especially if your business isn't highly attractive and with strong future potential - expect your sale efforts to stretch out for a long time.
In between these two extremes are all the other deals. Surveys of business brokers show that most sales take six to 12 months to close, with at least 10% of deals taking even longer. And of course, not all businesses sell. Unreasonable prices, all-cash demands, unattractive business conditions, and lack of financial, asset and inventory documentation can all contribute to a lack of buyer interest and slow the sale process.
Step 2. Be ready to steer through the following give-and-take negotiations.
Here's an illustration of the buyer-seller interactions you're about to navigate.
1. Buyer Responds to Ad ↓ 2. Based on Preliminary Pre-Screening Buyer Appears Qualified ↓ 3. You Contact Buyer Without Revealing Your Business Identity ↓ 4. Based on Buyer's Response to Further Inquiry, Buyer Appears Capable of a Purchase ↓ 5. You Meet with Buyer in Location that Doesn't Reveal Your Business Identity ↓ 6. Buyer Remains Interested; Signs Confidentiality Agreement ↓ 7. You Identify Your Business and Present Your Selling Memo ↓ 8. Buyer Remains Interested ↓ 9. Buyer Tours Business (ideally outside of business hours to preserve confidentiality); Discusses Offering ↓ 10. Buyer Presents Letter of Intent to Purchase ↓ 11. You and Buyer Agree on Offer or Counter-Offer ↓ 12. You and Buyer Conduct Due Diligence ↓ 13. You and Buyer Negotiate Sale Structure and Payment Structure ↓ 14. You and Buyer Sign Purchase and Sale Agreement ↓ 15. SALE CLOSING!
Step 3. Know the bailout points.
In the illustration shown in Step 2, each interaction that's bolded indicates a decision point. At each decision point, you need to make an assessment about the buyer's business qualifications, financial capability, purchase interest, and willingness to negotiate a mutually acceptable deal.
If at any point you believe - based on documentation the buyer has provided or information the buyer has communicated - that the buyer is unqualified, incapable, disinterested, or unwilling to negotiate, be prepared to politely end interactions. This call is entirely up to you as the seller; you don't have to interact with, or sell to, anyone who you are not comfortable dealing with.
In next week’s installment of “Selling Your Small Business” we’ll offer some tips on screening and communicating with potential buyers.