No matter which industry, the selling process for a business runs through four phases. While different factors play into the overall time it takes, most of the businesses we work with at Exit Consulting Group (ECG) sell between nine to twelve months. The below timeframe is based on the averages we see.
Occasionally there will be outside circumstances that drastically influence the timeline, such as the death of the business owner or dramatic health conditions. These circumstances don’t create the ideal selling situation, and often lead to concessions being made in terms of price. More often than not, the fluctuations in the time frame stem from either additional time being necessary to package the business to sell or navigating a niche market with limited buyers.
Preparation: 1-2 Months
Before we can officially take the business to market, we need to assess the company. At ECG, we use this phase as the initial check-in. We review assets, gain a better understanding of the market, define the core components of the business and start to narrow in on a potential sale price range.
One big component to this process hinges on managing expectations. Frequently, owners work with CPA’s or hire valuation firms to complete a business valuation or have predetermined notions on what the sale price should be. These numbers typically far exceed the market reality. In short, they are geared toward hypothetical buyers. We correct this by accounting for real buyers based on market value. Our team works with owners to adjust their perception to what their business can sell for on the market, as well as define their financial needs for the next phase of their life.
Other steps include agreeing on the process, defining the timeframe and steps, obtaining the rules of engagement for their industry and starting to determine how many buyers might be interested in this particular business. Preparation typically takes six weeks, but may vary either by industry or the business owner’s availability and ability to make information available.
Phase One: 2 Months
Once we complete the initial assessment and manage expectations, we start to package the business for the sale. In order to start creating the business book, we compile the confidentially agreements, financial analyses, the organization chart, the tax returns, corporate documents and everything that a buyer would need during due diligence. It’s important to get ahead of any potential challenges that would come up during the vetting period.
Following the creation of the book, we outline the ideal buyer. There are three types of buyers: strategic, financial and individual. Each one values a company differently and has different motives for the purchase, which means that both the sale price and the business book need to be catered to that type of buyer. We identify our ideal buyer and outline our plan to find them.
Phase Two: 2-3 Months
With the transition to phase two, we officially take the business to market. Our team starts to seek out and court buyers. Interested parties will seek out additional information, want to complete site visits and start negotiations.
Our team filters through potential buyers, narrowing down to the serious contenders. The goal of phase two is to get as many offers as possible, which typically means one or two depending on the business. From the verbal offer, we work with the buyer on a Letter of Intent (LOI). This non-binding agreement outlines specific terms each party agrees to. As you can imagine, there is a large negotiation period before finalizing the LOI.
Once both the buyer and seller sign the LOI, the process becomes exclusive.
Phase Three: 2-3 Months
Phase three consists of the uphill battle to close the deal. Despite having a LOI in place, closing the deal isn’t a given. The final hurdles include due diligence, purchase and sale agreements, securing financing, escrow and transition documents. Here we bring in the other key advisors, such as lawyers to review the agreements, CPA’s to assess the books and the owner’s financial planner to account for the liquidity change.
Developing a Plan Early On
The most successful business sales start years prior with a strategic exit plan. By defining your goals and charting out your vision for the company in advance, we can help you achieve your long-term goals.
Many goals focus on achieving financial retirement milestones, particularly ensuring that the owner has enough money from the sale of the business to maintain his or her current lifestyle. It is not uncommon for the current value of the business to fall short of these projections. In these scenarios, we work to implement value drivers and can better time the market for a more lucrative sale.
If you currently are operating without a strategic exit plan or are looking to sell your business in the near future, contact our team at Exit Consulting Group today. Together, we can help you navigate this complex transaction in a manner that achieves your goals.