This overview is of the negotiating and selling process, assuming you’ve groomed your business, developed your exit strategy, marketed your company for sale, and have made contact with a buyer. The process ahead will follow a few key steps:
- Get a letter of intent from the interested buyer
- Due diligence on your part and the buyer’s
- Purchase agreement
- Transfer of ownership
How long will it take?
Expect this process to take at least 6 to 12 months. If everything goes smoothly and your business is on the smaller end, it might be quicker. Larger and more complicated businesses could take longer. You can expedite the process by being prepared and by hiring the right expert to facilitate the sale.
Until the Purchase Agreement is actually signed, nothing is a done deal. And one thing that can discourage buyers is if things are disorganized or slower than they need to be. You time is precious, too. If the buyer in front of you is not the one, you’ll want to get to the part where you find that out as quickly as possible. You’ve got a business to run in the meantime, too. So be prepared and organized. Have the necessary info available.
The experts you need in your corner
A competent attorney and an accountant are indispensable for parts of this process. Your accountant will expedite the due diligence phase, and your attorney the paperwork. Having your attorney handle the paperwork will also eliminate risk and error in the paperwork.
Letter of Intent
The letter of intent facilitates the beginning of the selling process. It is not binding in any way, but it is accompanied by a deposit (held in escrow) to screen out less serious buyers. When the buyer submits a letter of intent, the seller stops advertising their business as for sale. Confidentiality is important to the seller, so its standard to not reveal the name of your company until the letter of intent is signed.
Finally, the letter is a document that the buyer can share with lenders when pursuing financing for the purchase.
This is the in-depth process of the buyer meticulously scrutinizing the business to see if it is what the seller says it is. The seller needs to simultaneously vet the buyer and make sure they’re who they say they are — that they have the means to buy, and that buying is truly their intent (rather than, say, intelligence gathering). The buyer’s due diligence might be a disruptive and time consuming process, but its a good thing for the seller, because it puts the responsibility for evaluating the business on them.
This is the phase where being prepared and organized is so important. Delays will discourage the buyer and take up more time for both parties. For an overview of some of the data buyers will be looking at, see this article.
This will be a lengthy, wordy document that actually binds the parties to the sale. Expect some negotiating to occur here. After due diligence, the buyer will have a different idea of how much your business is worth to them. This is absolutely a phase where you need a lawyer to help with the contract — to speed things up, reduce your own involvement, and eliminate risks due to errors or inexperience.
Transfer of Ownership
The sale is already done at this point. All that remains is to sign the documents that actually transfer ownership of the business assets into the new owner’s name. This usually amounts to a whole pile of paperwork. The services of an attorney are recommended for this stage, too.
You can get business and legal help with growing and selling your company in the Seattle, Bozeman, Palm Spring and Pittsburgh areas from Free Vector Advisors. Flexible payment terms are available. To speak to an advisor, click here and fill out our contact form.