The 4 Stages of Selling your Company
Selling your company can be an exciting, stressful and rewarding process. If it is something you have decided to do, then you may need some help on how to get started, and how to navigate obstacles along the way.
Below we have broken down the process of selling your business into four distinct stages. If you want your sale to succeed, you should adhere to this guide and closely follow the steps.
Stage 1: Increase your chances of securing a sale
This stage is set before you take your business to market. It is what you need to do in order to turn your business into a saleable commodity that is appealing to a range of buyers, and that will be valued at a good price.
Preparation is key to success; therefore we have collated the aspects of your business that you need to organise and get in order before the selling process begins.
1. Organise your books and documents
Get in order the administrative side of your business. There is nothing more unappealing to a buyer than disorganised books and a mess of legal disputes that could soon become their problem.
It is a monotonous task that holds a lot of weight in a sale, therefore it needs to be a priority for a business owner looking to sell.
Settle employee disputes, sort out any active litigation cases and overdue contracts. Tackling these problems later on in the selling process can be detrimental to a deal, and you risk the sale collapsing due to delays or the buyer’s loss of confidence in you.
2. Make yourself nonessential
Make sure the most essential part of the running of your business is not you. Ensure that it can operate just as successfully, if not more so, under your employees.
To establish this, take the time with your management team to teach them your business, and gradually offload more and more responsibilities onto their workload. Soon, they will not depend on you and will be able to run the business to your standards, even when you’re not there anymore.
3. Keep track of your finances
Similarly to your books and documents, keep a close eye on your finances. The valuation of your business can be affected by how your company is performing, so try and reduce unnecessary spending and push as much of your cash flow to the business’ bottom line.
If you want to be extra careful, get an audit done of your accounts from the last three years. This will give any buyer clarity on your financial situation without suspicion.
4. Spruce up the office
It may sound incongruous with the previous points and perhaps vain, but you want your business to make an impact on buyers. If a prospect visits the office, would you be proud of what they see? Invest in the physical appearance of your business and see a return on that investment in increased buyer interest and perhaps a higher valuation.
5. Get third party consent
Be open with your landlord or suppliers about your plans to sell and make sure you secure their consent to go ahead. Not having their consent could delay the sale and adding extra time to the process could put the buyer off, so ensure you have permission.
Pre-sale valuations
Within stage one of the selling process, the pre-sale business valuation will occur. This can be an emotional moment for any business owner who has watched their company grow from nothing.
Although emotion is expected, it can be distracting and cause bias in the business valuation, so hire a financial advisor to guide you through and value your company correctly.
Make the effort to educate yourself on the market value of other businesses in your industry so you can garner a full understanding of why your business is priced the way it is. This comprehension of the market could be essential in the negotiation stage.
Stage 2: Marketing
As with any sale, you need to dedicate time to marketing your product, or in this case, your business.
Make sure to utilise the numerous marketing channels that available to you in order to widen your outreach and do your market research so you are fully aware of the best prospects to reach out to.
Some marketing channels that you should investigate include:
- Social media: use platforms like LinkedIn, Twitter, Facebook and Google+ to contact sellers, connect with them and promote your sale.
- Speak to people within your industry to gain leverage such as your competitors, your customers or your suppliers.
- Advertise through local publications to appeal to buyers in your location.
- Utilise Google Ads to make your sale known.
On top of your marketing efforts, create a mini advert of your business that you can use whilst prospecting and can send directly to buyers. This can provide basic information about your business that can be circulated via networking platforms.
Here is what you should include:
- What you and your business does.
- Where do you operate.
- Your differences compared to your competitors.
- Your potential for growth.
- The reason you are selling.
- Your business’ financial information.
- Your contact details.
Stage 3: Documents you should provide
There are multiple documents that you need to prepare that will be relevant to your sale.
1. Non-Disclosure Agreement
Selling your business means divulging highly sensitive, private information to people you have probably just met, or do not know well, therefore keeping confidentiality is key. Organise a Non-Disclosure Agreement to be sent out to buyers for them to sign before providing more details about your business. Genuine buyers will understand and be willing to sign.
2. Write a Memorandum
This is an extension of your mini business advert. The difference is, it provides a more in depth overview of your business in a summary format that you can send to interested buyers.
Stage 4: Negotiating and closing
This is the most crucial stage of the selling process and officially determines whether your sale has been successful. The way you behave at this phase could be the difference between securing the sale and the deal collapsing. Here’s what will happen.
1. Ensure your buyer is qualified
Although this is included in stage four, you should really qualify your buyer in the initial conversations you have with them. It is included in this stage as qualifying your buyer properly can make the difference at this point of the sale.
You need to be certain that the buyers you are communicating with are eligible to buy. So, ask them various questions such as:
- Why do you want to buy the business?
- Where are you based?
- What are your current circumstances?
- Do you have experience in this industry?
- Do you have the budget to commit to a purchase?
2. Negotiations
Just because you have an eager buyer does not guarantee the sale. The negotiation stage is where a deal can collapse, so tread carefully. You want to strike the right balance between being flexible and understanding of your buyer’s needs, but also not taken for granted, therefore being determined and secure in your own terms.
Keep in mind the following, which will prevent you from rushing a sale and making irrational decisions:
- Is this a good deal/price they are offering?
- Is there more than one buyer interested?
- Could the sale be performed at an auction if there is more than one party interested?
- Will saying no to this buyer delay the process, and can I afford to lose more time?
You want to reach a compromise with your buyer at the negotiation stage without either party sacrificing too many of their demands. So, go into these conversations with an open mind and make an effort to bridge the gap between yourself and the buyer.
3. Heads of Terms contract
This is not a legally binding document. Instead, it marks the end of the negotiations and is a written overview of the finalised terms that have been agreed. Having a Heads of Terms agreement means that each party is given clarity on the sale as a whole, as well as the deal template.
Once you have completed these stages, you are likely on track to successfully close your sale.
For smaller businesses, this process will take approximately 9-12 months from start to finish, whereas for mid to large sized businesses it will take between 12-18 months.
The timeframe is ultimately arbitrary and depends entirely on how individual circumstances play out. For one seller, the market may be overrun with prospects wanting to buy. For another, they may put their business to market at a time where no one is buying.
Delays can be controlled to some extent by following the steps in this guide as closely as possible and prepare properly for potential obstacles that may arise.
The reality of selling your business is that it is a hard, time-consuming process that requires patience and preparation. The more time and effort you put into championing your business to the masses and believing in the process, the more likely you will be to succeed.