Selling your Business – Step by Step ProcessSelling a successful running business is not as simple as it sounds. William King
August 17, 2006
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So finally the time has come to sell the
business. After investing years of your time and uncounted thousands of
dollars, it has become successful, providing for your needs and wants,
and it's time to enjoy the fruits of your labor. Where do you start? A
good time to start thinking about selling a business is right after
startup, when it shows signs of beginning to succeed and become
self-sustaining. Even if you are planning on bequeathing it to your
progeny or a partner, it's never too early to think about what will
happen afterwards. The
first step is to take your time--selling a business is a complex
process and you will only do it once. Confidentiality is a necessity at
this point, as word of an impending sale can cause repercussions among
employees and business partners (suppliers, customers, etc.) alike. Your
position in the business is also a point to consider. If you are the
sole proprietor, the decision is yours alone. However, if you are a
partner or board member, selling your part of the business will involve
more considerations. Finding
a good broker is worth any amount of time needed to locate one you are
comfortable with. Check the Better Business Bureau for any
investigation history, and get referrals from fellow business owners or
from industry associations like the International Business Brokers
Association (IBBA). This is a non-profit "trade association of business
brokers providing education, conferences, professional designations and
networking opportunities" (IBBA), as well as professional
certifications and boasts over 1300 members. Next,
a professional appraiser should be consulted, as just like selling a
home, a professional appraisal will give a fair value to begin
negotiations with. Keep in mind though, an appraisal is an estimate of
the fair value of a business' hard assets, and the market value of the
business may be higher or lower, as a business is only worth what
someone else is willing to pay. Determining
major terms and price are issues that you are going to have to work out
with your broker, but a few basic factors come into play: what do you
want to get out of the sale? Continuing salary? Lump sum? Stock
options? This is a step often overlooked until late in the
negotiations, often to the detriment of the seller. Financing
the sale is usually about 90% left to the seller. If you can't or won't
be willing to cover the costs of the sale, it may not be a good time to
sell. Once
you and your broker have located a buyer and agreed on a price, a
Letter of Intent is drafted. This letter outlines the terms and
tentative price in a non-binding document and allows the buyer time to
thoroughly investigate the business. This process is subject to Due
Diligence, as the onus of discovery is placed upon the buyer and
buyer's agent. After
the discovery process is completed to both parties' satisfaction, the
Purchase Agreement is drafted. This set of paperwork creates a formal
agreement between buyer and seller regarding purchase price, terms, and
other legal details. Once the respective lawyers have finalized the
details and complied with state law requirements regarding the sale,
the Purchase Agreement is signed, closing documents finalized, and the
sale is complete. If everything has gone well, it's time to breathe a
sigh of relief and start planning what to do with all that free time!
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