Selling a Business: 4 Important Steps
27 December 2021: Selling a Business: 4 Important Steps

Get the Business Valued
I’ve often written about how business owners generally have an exaggerated opinion of their business’ value. This leads to expecting more from the sale than the business is worth – a guaranty of disappointment at best and no sale at worst. Aside from increasing the likelihood of a successful sale, knowing what a business is worth will give the owner an idea as to whether the proceeds at sale will be adequate to support them post-sale; whether post-sale means a new business opportunity, paying for the grand kids’ education, a simple retirement or buying a ticket for Elon Musk’s next launch. But sellers aren’t the only ones with skewed opinions of the value of their business. Buyers are concerned about paying too much and therefore tend to assign a value to the business they’re considering that is lower than its actual worth. This shouldn’t surprise anyone, as neither the buyer nor the seller is likely to have any experience valuing businesses. But both parties need to know what the business’ value is. Hiring a competent, experienced business broker – ideally one with a Certified Business Intermediary (CBI) designation – or a business appraiser should be the business owner’s first and most important step once he or she begins to seriously consider selling. Assuming that the target price established by the seller after having a professional valuation completed is
Use a Letter of Intent
A Letter of Intent (LOI) is generally used to stipulate the salient points that the parties agree to prior to the buyer performing in-depth due diligence on the business. The seller needs to know that, though the LOI will often contain an anticipated price that the parties agree to at this pre-due diligence stage, the final, negotiated price may be different.We offer a comprehensive coaching program specifically tailored to Realtors that want to sell businesses, business owners and to anyone that wants to become a business broker.
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A Letter of Intent is not binding – it’s not a contract. Rather, it’s a summary of the general terms and conditions the parties have hammered out as a preliminary step toward getting a purchase and sale contract negotiated. Such terms and conditions addressed in the LOI could include the length and scope of the buyer’s due diligence; the possible closing schedule and target date; how the payables and receivables are to be treated; what aspects of the inventory might be omitted, how the business will be paid for and a dozen other issues that are involved in the process. An LOI is “general” in nature but should include “significant” issues, such as those mentioned above. An LOI does not guaranty that the buyer will ultimately buy. But it does establish that the parties are serious and helps to define a common understanding of how the transaction should proceed as well as the meaning and intent of certain aspects of the transaction. An LOI is an important step from the standpoint of gauging each party’s commitment to a deal.
Prepare for Due Diligence

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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to value and sell businesses.
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It’s not a good idea to leave this to the last minute because hurrying to put this information package together risks not including everything that should be in it or, worse, errors in the package that will undermine the credibility of the seller.Scrutinize the Purchase Agreement
When selling a business, the purchase agreement is the formal legal contract that describes in detail the terms and conditions of the transaction. It is a comprehensive, “fleshed-out” version of the LOI and must be extremely clear in all respects. As a rule, the buyer’s representative – usually an attorney – prepares the purchase agreement which is why we always suggest that our client – the seller – hire a transaction attorney to review it. As a rule, we always give a preliminary review of the purchase agreement and make any notes that we think should be highlighted for the seller’s attorney’s attention. Some professionals leave the purchase agreement signing to take place at the closing table, but we like to have it signed ahead of time just because experience suggests that one or more loose ends might pop up at the last minute.The Bottom Line

Searching For…
This week’s “Searching For” item: coastal U.S. based provider of any of the following financial services: non-CPA accounting, bookkeeping, and fractional CFO services, and related software businesses with revenue between $1 million and $5 million. If any of you know of something that might fit, please let me know.I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com