What Are the Steps To Sell Your Business?
If you have made up your mind to sell your business, do know that it’s not easy. But, proper planning can make it a successful attempt given that you follow each step properly. Basically, you should know how it actually happens. Once discovered, it won’t allow delays to happen. For that reason, you have to understand the process of buying and selling a business, though you have an advisor with you.
The Process of Selling a Business
Here are some best tips to buy and sell a business. It would be good to hire a professional consultant for this process.
Step One: Get Ready with a CIM
As aforesaid, it’s a confidential information memorandum (CIM). It includes all about operations, financial statements, management teams, and other data that is important for a prospective buyer to know. Ideally, hiring a professional banker, chartered accountant, or lawyer can add a cutting edge. That professional would easily pick up the intentions of buyers (If they are serious about making a deal). Practically, such experts often have their own unique perspective, which they put forth by assessing your business. They evaluate as an outsider does.
Since buyers require it at first, it should be very clear, true, and understandable. All in all, it’s a critical step to start the deal with.
There are many reasons, or you can say, the benefits of sharing it with the buyer after the NDA. Let’s find out why you need it.
- To reduce wasting time with difficult or unintended buyers
- To run a smooth process of buying and selling
- To enhance the value of your business and reduce post-sale compliance or litigation
Step Two: Keep it Confidential
Confidentiality is key to marketing your business. Ideally, you may search online and offline for buyers. Then, draft your CIM. It will throw light on your overall business, including business operations, financial status, liabilities, etc.
If he or she finds it interesting, identify if the buyer is an individual, competitor, or private equity firm. Trail it with the discovery of its experience in the niche or industry. Maintain confidentiality while marketing your business, which refers to advertising in trade publications, magazines, and other media. This knowledge will guide you to employ the best-fit marketing method for more buyers. For guidance, you may also consult with an M&A advisor.
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.
Step Three: Monitor Buyers and Send a CIM
This step is for screening buyers. You should consistently monitor their market value. Many M&A deal offers come through email. Genuinely speaking, serious parties do have additional questions, which shows how serious they are. They want to get a little deeper into it. So, it’s absolutely ok if you are asked such questions.
Now, focus on what to share with them. It’s indeed vital. You may start with basic information, which is associated with your operations, financial statement, management teams, etc. But before sharing, ask the potential buyers to sign a non-disclosure agreement (NDA). Then, sending a CIM would be fine.
You can send the Non-Disclosure Agreement (NDA) online via email. It will narrow down the list to serious buyers, which means that only intended buyers will be there to deal with.
Here, the noteworthy thing is that your mail should be short, simple, and straightforward. Avoid asking to sign various documents and fill out lengthy forms beforehand because this is just an initiation. So, keep it short, sweet, and simple.
Step Four: Talk to Qualified Buyers
As you share your CIM, the qualified buyers will be shortlisted. However, sending an email is not sufficient. Connect with them personally, though it can be a short, quick, and friendly call. It should be like-“you may connect with us personally if you have any concerns or queries.”
After this, the serious buyer will certainly dial. Avoid running after them if they are not calling.
Sometimes, they send emails with a list of their questions. If it’s just one or two, you answer likewise. But, if the list is long, request to connect with you personally, or on a call.
If anyhow, they continue to demand additional information without any call or meeting, request them to share their resume, financial statement, proof of funds, credit report, buyer profile, and financial statement if they belong to the corporate world.
Once received, you can monitor the report thoroughly.
Here, you should remember that slow and steady wins the race. So, it’s the best policy to go slow and naturally. No hard and fast rules will work here.
Possibly, you may have to meet twice or thrice. At that time, ask your conscience and determine their commitment level.
Step Five: Send a Letter of Intent (LOI)
Frankly speaking, a professional as an intermediary can help you a lot in smoothly negotiating the deal. He understands your intent. So, convincing the buyer to maximize the deal value won’t be challenging.
Then, you may ask the buyer to sign a letter of intent (LOI). Be persistent in asking to sign if he/she is really serious about it. Reach out for an agreement on key terms, and then, draft its final copy. Do ask to enclose the proof of funds with it.
On the LOI, a mutual agreement on due diligence is necessary
You may examine the buyer’s background, financial condition, etc. If you find anything problematic, or objectionable during it, take a step back and call off the deal.
Due diligence is a crucial stage, which helps in determining the buyer’s expectations. That’s why nearly half of the deals do not succeed. Sometimes, buyers come up with unacceptable requirements, which make the deal die before happening. You should have a checklist for due diligence. Use it to prepare necessary documents accordingly. With it, you may go on smoothly and in an organised way.
Step Six: Manage the Due Diligence Process
Due diligence is a regular exercise. So, keep it up and prepare a checklist for its smooth processing. Remember that the buyer will have the power at this point. However, it is risky, but the buyer can only reduce it.
You may leverage the buyer to get financing support for the deal during due diligence. Be honest and transparent to avoid misunderstanding and misinterpretation. The buyer can use your misinterpretation to offset any damage using a right of offset.
Step Seven: Closing the Deal
It would be best if you prepared yourself in advance for the closing. Continue to organise every document as per the checklist to meet the deadlines. You may take professional support.
There are multiple steps involved to sell your business. Start with preparing a confidential information memorandum (CIM). It is a significant document, which answers vital questions that every buyer or seller should know.
Alongside, you should confidentially market your entity. There are many online marketplaces like Bankers Deals, Midaxo, Devensoft, etc. where you can search and find the best buyer confidentially.
Once found, discover if the buyer is an individual, competitor, or private equity firm. It will guide you to tailor your plan. So, you should screen them and then, pitch by emailing your CIM. Email is the most preferred source of communication during mergers and acquisitions (M&A). As a seller, you may request the potential buyer to sign a non-disclosure agreement (NDA). This step should be prior to sending the CIM.