The Six Phases of a Successful Business Sale
When it comes to selling your business, there are six distinct phases to a successful process. Done right, you achieve all your goals, and ultimately feel good about who you've passed your legacy on to. Done wrong, and there are arguably fewer more frustrating and costly (in time, money, and stress) endeavours in this world.
Valuation & Launch Strategy
The first part of this phase is to establish a reasonable range of value for your business. More important that the value itself, however, is to get crystal clear on exactly what is driving that value. The strengths of your business, the weaknesses (opportunities), risks, future growth opportunities, etc. This information will be crucial in the following two phases.
The second part of this phase is about strategizing the launch. From the seller's perspective, besides value and purchase price, what ELSE is important in a deal. Is timeline important? What values should a purchaser hold? And regarding potential purchasers, WHO this business is best suited for, where can we find them, and how are we going to go about doing that.
The third part of this phase is to craft the message and create the marketing materials (teaser and CIM) that you are going to use to market the business for sale. The job of these documents is to speak to and attract your ideal purchaser. The right purchaser should read them and say "THIS is the business I want!".
Coordinated Launch of Business for Sale
Once the value and strategy have been established and the marketing materials created, the next phase is to bring your business for sale (the opportunity) to the market and launch a coordinated effort to pursue as many of your ideal buyers as possible, thereby increasing the chances of securing a deal you’re happy with.
When a purchaser expresses interest in the opportunity, first step is to have them sign and NDA and fill out a buyer profile. Once signed, we share the CIM (the main document detailing the opportunity) with them. Typically they will read through it, and if they're interested, they'll return with follow-up questions to determine a fit.
It bears repeating, the goal here is to have as many interested purchasers interested in the business. Among other benefits, this provides the seller good leverage through negotiations, and helps bolster value.
Negotiations and Securing of Offer
As you continue to share information with prospective purchasers, ultimately you will want to whittle down a list of top-tier purchasers. These are purchasers who:
(A) are a good fit for the business, both in skills required and values (again, besides purchase price, what else is important to you);
(B) who see the value in what you have to offer, and;
(C) who have the means financially to acquire it. Ultimately there can only be one purchaser, and so the goal here is to narrow down the options and secure a signed LOI (Letter of Intent).
Due Diligence and Secondary Negotiations
With a signed LOI, this is when the buyer begins a deep-dive into your business to look in all the closets, to turn over all the rocks, and ultimately verify all of the information and claims you have made about the business and opportunity.
A WARNING!
Referring back to phase one: when building the story and creating the materials you're going to use to market the business for sale, it will be tempting to "leave out" certain details you maybe aren't too excited to share; to highlight the strengths but "hide" the weaknesses.
This is a mistake.
Firstly, the more info you can provide upfront, the more informed a purchaser becomes. The more informed they are, the more detailed and accurate offer they can make.
Then Due Diligence, instead of being a "fact finding" process which leads to a second round of negotiation as "skeletons" are discovered (which often drives emotions and kills deals fast, which in turns becomes a huge waste of time and money for all involved), it becomes "fact verifying" process.
As they look in the closet and under the rocks, all the information you've stated is VERIFIED, not discovered. This builds trust, and ultimately saves any re-negotiation whatsoever. Doing it this way saves massive amounts of time, money, and stress.
Close of Purchase
(and Subsequent Celebrations!)
Not nearly as much to share here. Once a purchase agreement has been signed by both parties, the closing phase begins. Both the purchaser and seller begin to satisfy “closing conditions” of sale.
This entire process from beginning to this point, as you can imagine having read through this far, is delicate, and intimate. It is no small task to achieve a successful business sale. And while the entire process is not yet complete (see Phase Six below), for clients of ours having achieved this major milestone, we like to celebrate.^^
Post-close Transition
Negotiated in a prior phase, one important term in a successful deal is always the owner's transition period post-close, i.e. how much time are you going to spend training and transitioning the business (knowledge, processes, relationships, etc) to the new owner.
While it's often normal to want to agree to "as little as possible", there is important nuance to be considered around this, which can build (or erode) trust, and signal your commitment to and belief in the future success of the business.
Once the sale officially closes, the transition period begins. It is possible aspects of this were started prior, however this involves transferring knowledge, relationships, processes… everything the new owner will need to continue to run the business successfully. The scope and duration of transition are typically decided as part of negotiations.
WANT TO LEARN MORE?
The unfortunate reality of this process is that there is a lot that can wrong, and you only have one shot to get it right... otherwise it can turn into a very costly and unpleasant experience!
Download our report on the "11 Common and Costly Mistakes" people make through the selling process, and set your self up for success from the beginning.
