Business owners selling their operations face one of the biggest emotional, financial and impactful transactions of their lives. The process requires expertise, experience and attention to detail to maximize financial returns and legal protections. 

When should you start thinking about selling or consider an alternative disposition plan? Sellers nearing retirement should start the process three to five years before their desired exit.

Most appraisers, banks, buyers and equity groups consider not only year-to-date business performance, but also performance over the past three years or more. Moreover, the marketing and transaction process also can take time — 12 to 18 months on average.

This makes it important to meet with a professional to evaluate current value and marketability as well as implement the changes that could be required for a more expedient and profitable sale when the time comes. As with any important event, finding the right advisor is critical. The best advisor is the one who has the expertise to guide sellers through the entire process. A professional advisor, also known as a business intermediary, can bring together all the stakeholders as well as handle confidentiality, due diligence, marketing and transactions.

Here are 11 steps to a successful business sale:

Introductory meeting. It’s important for sellers to build rapport with their advisors and learn about their experiences and firms as well as the listing and selling process. It’s equally important for advisors to gain an understanding of the businesses and the expectations of the owners.

Business evaluation. This stage involves gathering preliminary financials and other applicable information needed to develop a full valuation. 

Listing and price discussion. An advisor will present an analysis of the business, address questions about financials and operations and present a range of values.

Signed listing agreement. If expectations match and the seller wants to move forward, the advisor will prepare a listing agreement.

Marketing and due diligence information gathering and preparation. Once a business is officially listed, the advisor will begin collecting the information necessary to complete an offering memorandum and sales package to present to potential buyers. The seller will approve all forms, including non-disclosure agreements and other applicable documentation. 

Confidential marketing and buyer selection. Every business has a different profile for the ideal buyer and requires a customized marketing plan. While providing full and exclusive confidentiality through non-disclosure agreements, the advisor will focus on presenting the opportunity to interested and qualified buyers.

Negotiation and letter of intent. Once an interested and qualified potential buyer is found, the negotiation phase of the sale begins. A buyer will typically present a non-binding letter of intent defining the major points of the purchase. 

Purchase agreement. The process of arriving at a negotiated and agreed-upon purchase and sale agreement (PSA) constitutes a critical stage of the transaction. The PSA will detail the terms of the sale, including not only price, but also exclusions, inclusions, legal ramifications, purchase structures, warranties and more. Buyers and sellers often engage lawyers to help prepare these documents.

Due diligence. The amount of due diligence requested by a buyer depends on the type and size of the transaction. Typical items often include balance sheets,  equipment lists, facility tours, profit and loss statements, specialized financial reports and tax returns.

Closing. At closing, all paperwork is executed and funds delivered. Typical closings occur at an lawyer’s office, title company or other mutually agreed upon location. At this stage, the parties will execute all applicable documents, including bills of sale, loan documents, operating agreements and promissory notes.

Post closing. Depending on the business and negotiations, the seller could be required to assist at some level in the transition of ownership. This could range from being available for a short period to answer questions to working under an employment contract for a number of years.

This column was provided by the Bray Business Advisors Group, a team of experienced brokers and staff serving businesses in Western Colorado. The team is supported by a knowledgeable commercial real estate division as well as accounting, closing, information technology, marketing and title specialists. For more information, visit www.braybusinessadvisorsgroup.com or call 263-2955.