BUSINESS SALES PROCESS


Selling a business is a complex and time-consuming task. It is a highly confidential undertaking, which must be managed with considerable care and attention to detail. It takes considerable knowledge, excellent management, interpersonal and negotiation skills, as well as personal sensitivity to deal with prospective buyers, transaction attorneys, accountants, bankers and the business owners who wish to sell their business. The macro process is roughly as shown below, but the timing and flow depend on situation and circumstances of the deal. Very often there are parallel flows and not all information requirements are serially driven, however rarely are any steps omitted:

 

1. Business Valuation
In order to establish a reference point it is essential to know the value of the business. Therefore the first step in selling a business is to determine the asking price. Overpricing the business reduces the interested market prospects, on the other hand, under-pricing the business leave money on the table.

 

2. Recast Financials
This step normalizes the income and balance sheet to depict the true cash flow of the business, and the true Owners or Sellers Discretionary Cash Flow (SCDF), which is a key element for any prospective buyer to know. It takes experienced professionals to recast a businesses financials and arrive at a valuation for the business.

 

3. Marketing Collateral
This step is the creation part of the process to show the business off in its best light. It comprises a Confidential Selling Memorandum or Prospectus, a Marketing Plan and associated flyers and brochures to help sell the business. Well-prepared marketing collateral can mean the difference between a buyer making an attractive offer and walking away.

 

4. Qualified Buyer Prospecting
This step entails advertising, canvassing, contacting buyers in our database, and prospecting. We market businesses nationally and internationally, as there are many buyers worldwide who are qualified buyers. An owner may not be knowledgeable in current areas of law, accounting, taxes, and marketing of businesses An owner typically does not have the ability or time to contact, screen and qualify a large group of prospects, oftentimes many hundreds, before a suitable qualified buyer is identified who is serious and will offer a fair price A broker has the experience, knowledge, and negotiating skills to sell businesses effectively and for the best price, particularly in a highly emotional negotiation where some of the buyer's objectives are totally opposite of the owner's.

 

5. Buyers Qualification
Buyers are qualified to ensure that their background, resources, and interest to acquire and run your business successfully match those that the broker and Owner deem appropriate. If this is not done properly by certified and qualified professionals deals can fail in the final stages because the buyers were not properly qualified in the early on in the process. Rochester Business Brokers comprehensively qualify buyers to ensure that an unqualified buyer does not waste the Owners time.

 

6. Confidentiality Agreement
When the intermediary receives an inquiry for information, before this information is disclosed to any prospective buyer, they must sign a Confidentiality Agreement, which is intended as protection for the seller in the event of litigation.

 

7. Release Confidential Selling Memorandum
On receipt of a signed Confidentiality Agreement the intermediary sends out a Confidential Selling Memorandum for the buyers review. Subsequently, the prospective buyer may request additional detailed financial information, which will be part of their early due diligence on the company. Once the buyer has reviewed the information and gains an understanding of the business they may wish to take the next step.

 

8. Seller and Buyer Meeting
If the prospective buyer expresses continued interest after reviewing the Confidential Selling Memorandum, the next step is for the seller and buyer to meet each other and for the seller to visit the facility. The intermediary will be present at this meeting, coach the seller on presentation, and guide the dialog to influence a favorable outcome.

 

9. Offer and Counteroffer
The intermediary will assist the buyer draft an Offer to Purchase, or Letter of Intent, which will include: price, terms, earnest money, financing, purchase price allocation, training, non-compete agreement, any franchise transfer fee, inventory, equipments, assignment, due diligence period, closing date, etc. The intermediary will present all offers to the seller, and facilitate the negotiation process to ensure that both parties achieve their desired goals.

 

10. Due Diligence
If the offer is accepted, the buyer will commence the due diligence process. The intermediary will facilitate the process to provide the buyer with the information they require, with considerable stealth, as it is a critical that any employees, suppliers, or customers are not aware that the business is for sale until the deal is closed.

 

11. Negotiation with Bankers
Professional and certified intermediaries have numerous banking connections and this is a significant step for the prospective buyer. Kinney Brokerage know many bankers personally, which differentiates us from the run of the mill broker who has no connections. Most first time business buyers need an intermediary's assistance in connecting them with the right banker. Kinney Brokerage has personal relationships with the right bankers, especially SBA banks, where loans can be approved as fast as two-weeks rather than several months.

 

12. Closing
Once the due diligence period is completed, the legal process starts to move forward. Now the sellers and buyers attorney's begin drafting the definitive agreement. The buyer will also be required to sign a waiver of contingencies. Once a definitive agreement is signed the buyer cannot back out from the deal without forfeiting their earnest money. Having a good intermediary at closing is important, because the intermediary can smooth out the process should emotions spill over at the closing table. Which can happen if sufficient preparation has not been accomplished before closing.