Are you thinking about selling your business? If so, here are the basic steps to getting an offer.
Step 1: Preparations
Before you can sell your business, you will need to put together important documents, value your company, and decide on a sales price.
Use this link to look up the list of documents you need to sell your business. Most of these items will be required by a buyer during the formal due diligence process. There may also be other necessary documents that are not listed in the item checklist that a buyer will request. Once you gather this information, your next step is to figure out the value of your business.
To value your business, you need to figure out what the industry sales multiple is. This multiple will be used to get your valuation. You can do this by researching similar companies that are listed for sale. Please note, the for sale multiple and the sold multiple can be very different. There are a lot of businesses listed for sale that will not sell. If possible, use sold comps to determine business valuation multiple.
After you complete your market research to determine your multiple, you will then calculate your “Seller’s Discrtionary Income”. Here is an older post that helps you determine what your business is worth. From there you multiply the Seller’s Discretionary Income by your industry multiple to get you value. I always recommend listing the business for a little more than your valuation.
Step 2: Create a Confidential Information Memorandum
Take some time to create a Confidential Information Memorandum. This document should give a potential buyer a good level of information on your business. Include high level financial breakdowns, industry overview, ownership history, growth opportunities, business model, and so on.
Step 3: List your business
Choose a couple reputable sites to create a business sale listing. Strategically describe your business either confidentially or not. Be careful, if you choose not to do it in a confidential manor, some competitors may find out and use it to steal clients.
Step 4: Get a NDA if listing confidentially
Have a lawyer create an NDA or use a generic one you are comfortable with. When a buyer inquires through one of your listing, send them the NDA to sign before providing any confidential information. Be careful not to use your business email, because they can figure it out without you telling them the business that is for sale. Additionally, if your name appears on your email address, they can use Linkedin to figure out what business you own.
Step 5: Send CIM and P&L’s to potential buyers
When a buyer inquires and an NDA is signed and returned, provide the potential buyer with the company information and request them to send over any questions they have. After receiving any questions, answer them and see if they would like to meet in person to discuss the business further.
Please note, at this stage, I wouldn’t release tax returns. This usually only gets released during the due diligence period or after several meetings and may help secure an offer.
Step 6: Meet with potential buyer
If the buyer is still interested after reviewing the CIM and financials, then you should meet with them to make sure they would be a good fit to buy your business. It is also important to make sure you all get along, since there will be a training period after the sale and you have to work with them. After the meeting, ask what their next steps are, usually it is either to submit an offer or decline (which they never say, they will say they have to think about it more).
Step 7: Provide any additional information or receive offer
At this point, you are either going to receive an offer, provide more information, or never hear back from the potential buyer.
Please note, every business is different. This is the basic high level process to selling your business.
Please contact us if you have any questions or want to learn more. We are here to help – Wishing you the best, Alex Khabbaz, Managing Partner and Austin Business Broker for Texas Business Brokers.