The Process of Selling a Business
Let’s begin with the assumption that you’ve definitely decided to sell your business and have followed our advice about properly preparing your business for sale.
It’s time to call your VR Pasadena office!
1. Meet Your VR Broker
The first meeting should be held at your place of business (if possible) so that the Broker can develop a better “feel” and understanding of the business. The objectives of this first meeting include:
a. We will provide an overview of VR, the background of the Broker, the way in which businesses are priced and our general sales process.
b. We will try to develop an understanding of your business, your industry, the structure of your company, its financial status and all the issues, pros and cons that currently affect the business.
c. A review of your financial statements – so that we can provide pricing guidelines.
Essentially – we are trying to develop a rapport between the Seller and Broker, educate you on the sales and pricing processes, determine whether we can successful sell your business, and collect enough information for us to provide a formal proposal.
One of the questions that is often asked at this point is “... how much experience have you had selling my type of business?” The response could range from “lots” to “none!” But, the answer is that: “although we may not be expert in each industry, we are experts in the process of marketing and selling businesses.” In reality, the common threads of a successful business (product or service quality, organizational strength, market share, marketing, etc...) and a successful sales campaign (realistic pricing, marketing, quality of information, etc...) are essentially the same for most businesses!
2. Pricing the Business
You’ll get a FREE market valuation!
As the next step, we will provide you with our opinion as to the correct pricing strategy for your business. While we routinely recommend that a formal valuation be completed for all complex businesses, or those with revenue in excess of $2.0M, we will provide a market based, pricing analysis for you.
3. Our Proposal
We will provide you with a written Proposal that includes:
a. A pricing strategy,
b. Specifically how we will market your business,
c. The Broker that we recommend to represent you, and their background, and
d. Our pricing.
4. Mutual Commitment
Using the Proposal as a baseline – we will complete a formal Representation Agreement, as your exclusive agent.
5. Creation of Marketing Documents
We will:
a. Create the Business Profile – which is a document that includes an overview of the business, its structure, market, history, strengths, financial statements, pictures, etc... That will ultimately be provided to potential (qualified) buyers.
b. Write the internet ads
c. Create the direct mail contact list and media, as applicable.
Please note, that none of our materials will indicate the name of your business or (hopefully) enough information for anyone to identify the specific business that is for sale. Confidentiality is exceptionally important and a cornerstone of all our activities.
The Business Profile will only be released to parties that have completed a Confidentiality Agreement and provided information that indicates they are financially qualified to complete the acquisition and have the experience to operate a business of this type.
All of these documents will be reviewed with you before publication.
6. Marketing Your Business for Sale
Once you have approved our marketing materials we will begin!
Our efforts will include:
a. Dissemination of the business opportunity throughout the VR network. FYI – VR has a company-wide “listing system” that allows all of our brokers, worldwide to see your business. All of the VR offices are committed to actively working Network listings, and financially incentivized to do so!
b. We will advertise your business on our professional listing services: International Business Brokers Association (IBBA) and California Association of Business Brokers (CABB).
c. We will list your business on the most widely used commercial Businesses for Sale websites.
d. Perhaps most importantly – we will reach out to potential Buyers who may not even be looking for a business to buy. This is the strategic buyer – probably a competitor or a business in a related or complimentary industry, who may have an interest in an acquisition when presented with an opportunity.
We will create a list of the business in this category, review it with you and then approach them either by mail, or phone to discuss the opportunity (without revealing your business).
7. Screening Interested Potential Buyers
a. Anyone who expresses an interest will be required to complete a Confidentiality Agreement and Personal/Business Profile that includes their contact info, business experience and financial capability.
b. If acceptable, we will provide them with a copy of the Business Profile.
c. This will likely precipitate a list of questions, which we will either answer to forward along to you for comment.
d. If they are still interested after review of these materials, we will interview them to assure they’re appropriate for the business.
e. Once we’re satisfied that they are a viable candidate – we will contact you to set-up either a conference call or meeting.
8. Letter of Intent or Purchase Agreement
Once there’s been a meeting – we try to get the Buyer to formalize their interest in the form of Purchase Agreement, or the less formal Letter of Intent.
a. The Purchase Agreement: is a formal document that details all of the key components of the transaction such as the purchase price, the manner in which it will be paid (i.e. amount down, seller financing, 3rd party financing, etc...), the terms of the non-compete agreement, seller training, as well as all the contingencies (i.e. financing, obtaining a lease, etc...) and a period for due diligence. A down payment or consideration accompanies the Purchase Agreement that creates a legally binding contract between the buyer and the seller. This terms of this document will likely be negotiated between Buyer and Seller until there is Agreement and both have signed the final Asset Purchase Agreement.
b. A Letter of Intent: Is a non-binding Letter from the Buyer indicating the general terms under which they will purchase the business, to be formalized into a Purchase Agreement after the successful completion of due diligence. It is not accompanied by any money and has no real legal status, other than establishing a “high level of interest.”
It allows the Buyer to get a closer look at the business, including its books and operations – without really making any commitment (other than psychological) as to whether in fact a purchase will occur.
Often used for big businesses or timid Buyers. We will usually require that the Seller be allowed to continue marketing the business for sale, and that the Letter of Intent either evolve into a purchase agreement or expire within 30 days, and that the Seller be able to unilaterally cancel – providing the Buyer with a right of first refusal if another Buyer comes along.
9. Agreement, Due Diligence, and Removal of Contingencies
Once there an Agreement on the terms of Purchase, the Buyer will be provided an opportunity to complete their due diligence. That is, a review of all facets of the business to whatever degree they wish, and to which the Seller agrees.
This will result in either a formal removal of Contingencies – and continuation of the original deal, a revised Purchase Agreement (perhaps including a revised price), or cancellation of the deal!
Assuming the deal proceeds – we are now ready to enter escrow. Please note – that we generally suggest that due diligence be complete and contingencies be removed before escrow is opened. This is not necessary and will extend the closing process, but we have found it prudent, since the opening of escrow will result in fees which become a potential problem if the deal is ultimately canceled. It also requires publishing the fact that the business is being sold … which may be harmful to the business if the deal does not proceed.
10. Escrow and Closing
Escrow will begin upon completion of identical Escrow Instructions by the Buyer and Seller and the deposit of the down payment provided by the Buyer with the Purchase Agreement. Please note, that in most cases a formal escrow is not legally required. However, there are a number of tasks that the escrow agent routinely performs that are required by the California Bulk Sales statutes that serve to protect both the Buyer and Seller. We strongly recommend that all our transaction include a formal escrow.
The escrow company will:
a. Publish the fact that the business is being sold – providing notice to creditors that they must submit claims by a specific date.
b. Verify that there are no liens on the business assets.
c. Assure that state employer and sales taxes have been paid.
d. Provide a format for allocation of the sales price between fixed assets, goodwill, etc.
e. Collect any sales tax due on the transfer of assets.
f. Draft and assure that any Notes are executed.
g. Allocate business operating expenses for the final period of operation between Buyer and Seller.
h. Manage the collection of all documents and sort out the final amounts due from the Buyer and to the Seller.
i. Exchange documents and funds … to announce a formal Close, or exchange of ownership
11. Congratulations - You've Sold Your Business!