Step 4: List the Business
After all of your questions are answered, we'll send you the Listing Agreement. The Listing Agreement will kick off the engagement. We will also need to decide on the listing price. We prefer to list at or near the business valuation of course.
Step 5: Gather the Details and Create a Confidential Information Memorandum
We will prepare the Confidential Information Memorandum (CIM) to provide to prospects AFTER they have signed a non-disclosure agreement. We'll need to ask you all the key information about your business in order to create this document. The CIM should provide an Executive Summary, an Overview of the Market, Products and Services, Marketing Strategy, Online Presence, Financial Summary and Details, Financial Projections for the next 1-3 years, Management or Key Employee Profiles, General Customer Profile, Reason for the Sale, Cashflow Analysis, and more.
Step 6: Contact the Prospective Buyers that We Have Identified
We'll contact the prospects that sign up to be added to our Buyer Database and those we know are specifically looking for a business so they will have first look at the listing. If they are interested, they will sign an non-disclosure agreement and we will forward them the CIM.
Step 7: Post Ads on the Internet
Soon after, we'll post ads on multiple websites. In order to maintain the confidentiality, we'll have to be fairly vague about it. This is a very challenging part of marketing any business. We are tasked at selling something we can't openly display publicly. Our goal is to provide just enough information to get inquiries. The details come after they the non-disclosure agreement.
Step 8: Screen Applicants
Unfortunately, many inquirers are tire-kickers. Their curiosity gets the best of them and they just want to know who is thinking about selling. Our goal is to weed those out, but frankly, it is difficult to do. If someone is a local competitor, we are skeptical for sure. The second inquirer we try to screen is person that may want to own a business but doesn't have the financial availability or the acumen to complete a transaction. Once we feel like the inquirer has a chance and after signing the NDA, we'll send them the CIM.
Step 9: Engage in Conversation
Once the Prospective Buyer reads the CIM, they will decide to engage or not. Those that do, often have several questions at first. In some cases, we may be able to answer those. We hope the CIM answers most of their questions. But, this will often lead to a 3-way conference or zoom call. Bottomline, even though they are interested in buying your business, they first have to buy you, as an owner. There are 2 main questions that Prospective Buyers tend to ask themselves -- (1) can I see myself running this company, replacing the current owner? and (2) can I maintain or grow the current revenue after closing? They won't come out and ask those questions, but rather will ask other questions that will help them answer those questions for themselves.
Step 10: Support the Prospective Buyer in Submitting a Letter of Intent
Once they fill like they are comfortable with the business and their ability to run it, the next step is to agree to a Letter of Intent. It is non-binding in reality, but should spell out the selling price and the terms of the sale. The primary purpose is to make sure both the Buyer and the Seller are on the same page.
Step 11: Due Diligence
Part of the purpose of the Letter of Intent is to open the next stage of the relationship so the Buyer can dig into more details. They will ask for a lot of data. The primary purpose should be to verify that the business is and does what you claim it does.
Step 12: Provide Guidance on Financing
Most businesses that cost $5 million or less are acquired using an SBA loan with 10% cash down payment from the Buyer. Businesses over $5 million may be acquired using private funds or equity investors. In both cases, the Buyer may request the Seller to finance a portion of the sale. We will consult with the prospective buyer on SBA lending institutions or other possible options to fund the acquisition.
Step 13: Prepare Definitive Agreements
The Prospective Buyer should engage their Attorney to prepare the Asset Purchase Agreement and the Real Estate Contract if applicable. The Asset Purchase Agreement includes a lot of details, things like warranties, contracts, included and excluded asset lists, transition plan, allocation of assets and much more. A Seller should expect to be able to supply the needed information to support both the legal documents and the bank loan requirements. If there is real estate involved, there will often be a survey, an appraisal and an environmental study required. The bank will require a 3rd party business valuation as well, paid for by the Buyer.
Step 14: Closing
After the legal documents are finished and the bank loan is finalized, the bank will schedule the Closing. Once all the paperwork is signed, the Title Company or Closing Agent will then transfer the funds from Buyer to Seller. Time to breathe. And then congratulate both sides.