Stages in the sale process of a business

By Lee Rossini

Although the sale of a business may happen quicker than expected, in most cases a sale will move through four distinct stages after the decision to sell has been made. The stages are preparation, marketing, negotiating and closing.  The selling of a business is a very delicate time and it is important to carefully manage the process to prevent fallout that negatively affects the value and possible sale of the business. In fact, when you are well-prepared, you enhance the buyer’s perception of the business.

Stage 1:  Preparation

Proper preparation is key to the process. This is the stage where financial planners often leave money on the table, either through inadequate planning, poor sale preparation or not knowing the true worth of the business.

The seller:

• positions the business for sale;
• ensures that all the relevant business documentation, including the financials, are up to date and accurately reflects the state of the business;
• carries out any changes that should be made in preparation for the sale and gets the business ‘sale-ready’;
• does market and industry research for comparative purposes;
• gets to grips with valuation methods and works out the value of the business; and
• prepares an offering memorandum.

Stage 2:  Marketing

The seller:

• Drafts a marketing letter to attract prospective buyers.
• Drafts an information pack to give to prospective buyers.  The more information buyers have, the less risk they perceive.
• Releases the letter to appropriate sources and channels.
• Responds to interested parties by:
  • asking prospective buyers to sign a confidentiality agreement;
  • begins the process of qualifying prospective buyers;
  • releases the offering memorandum to qualified buyers;
  • responds to queries prospective buyers may have;
  • prepares additional information as required; meets with prospective buyers; and
  • arranges and facilitates visits to the business by prospective buyers.

Stage 3:  Negotiating

Negotiating is a skill and if you lack confidence around how best to negotiate, it may be worthwhile asking a skilled negotiator to do it on your behalf.
Negotiating from a position of weakness or a lack of knowledge can lead to accepting the first offer put on the table.

The seller:

• collects letters of intent from serious buyers;
• researches the serious buyers to ensure they are legitimate and in a position to make an appropriate offer;
• enters discussions and negotiations with serious buyers; and
• selects the most promising buyer and announces the acceptance of the letter of intent of that buyer.

Stage 4:  Closing

• The purchaser conducts an in-depth due diligence of the business.
• The seller negotiates the final purchase agreement with the buyer.
• Both parties sign and close the deal.

It is evident from the stages outlined above that selling a business can be a lengthy process. A drawn-out sale process can be avoided by keeping the business ‘sale-ready’ and having a clear idea of what your goals are in respect of the sale. 

After the deal has been closed, all the relevant stakeholders should be informed of the sale. Careful thought should go into how this information is communicated to staff and clients. The reason for the sale should be disclosed and it is best to be upfront regarding the possible consequences of the sale and how it will impact on both staff and clients. This process should happen in a sensitive manner, otherwise it is likely to alienate people. For a smooth sale to take place, preparation and good communication are key to the process.