Selling a business is neither quick nor simple. Transactional, legal, financial and other constraints often materialize. Sellers should take the following broad steps to ensure the successful close of a business sale:
- Define the motivations for selling
The reasons for selling a business should be clearly communicated to determine the potential exit strategies available and the target buyers. These motivations could include the desire to monetize investments made, a need to raise funds, the desire to pursue other investment opportunities, inadequate capacity to operate the business or even a negative outlook on the business performance.
2. Determine the range of value of the business
The value of any business is derived from the assets it currently holds and its ability to generate positive free cash flows in the future. Ideally, the seller should work towards getting a realistic and defendable valuation. Inviting an independent party to conduct a valuation adds credibility to the process.
3. Compile due diligence information
Sellers should create a well-organized data room to enable potential buyers conduct due diligence. The data room will often include copies of incorporation documents, audited financial statements, tax records, organizational structure, firm policies, contracts with suppliers and clients, relevant licenses and statutory approvals. The seller should also put together a single document summarizing this information.
4. Target, pre-qualify and engage potential buyers
This is usually the most time-consuming element of selling a business. Parties that could penetrate new markets and expand market share through the acquisitions are likely strategic buyers. Employees are sometimes the best fit for a buyout transaction where legacy issues are a concern for the seller.
5. Transaction closure
The terms and conditions of the business sale negotiated between the buyers and sellers are documented in term sheets, share sale agreements, change in title of assets and other required documentation. The seller should request proof of funds before and during the settlement of the business sale.
6. The transition of management and ownership
The seller should prepare to dedicate time and resources to assist the incoming owners to settle in the business. This party should also introduce the buyer to employees, key clients and suppliers.
The seller will require the advice of various technical experts to navigate the selling process. Standard Investment Bank has experience in assisting business owners to monetize their investments by providing them with due diligence, transaction structuring, valuation, placement and project management services. For more information, contact us at firstname.lastname@example.org.