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When it comes to selling a business, research shows that many owners have a limited understanding of the process and often make fundamental mistakes that can seriously undermine the final sale price. Selling a business has become a complex transaction that is subject to many legal and financial conditions. Many businesses change hands every month in a planned, orderly way with owners realizing excellent value. Others are sold in a less rigorous do-it-yourself fashion that often leads to poor results which are compounded by frustrating delays and ongoing uncertainty. Keystone Business Advisors offer an approach to keep things moving forward in an orderly manner to ensure that sensitive information is protected, uncertainty is avoided and the best price is achieved.
The Sales Process:
1. Preparing The Business For Sale In Advance
Advance planning is important to make sure your business is performing well when marketing your business for sale. The majority of buyers make their investment decision based on the verifiable revenues and profits being generated from the business being sold. As a result, Buyers want to be sure that these revenue and profits will transfer to the buyer after the sale is closed. Critical factors buyer look for when evaluating a business are:
2. Opinion of Value
Experience has shown that there are a large percentage of business owners who do not know what their business is worth, nor how to go about establishing its true value. Some owners have a figure in mind of what their business is worth, often over inflated because of their emotional attachment. Others undervalue their business because they do not know the various valuation methodologies and which is most appropriate for their specific business. There are several established methods of determining the value of a business. In most cases, KeyStone uses a combination of these to determine the Most Probable Selling Price. Most of the approaches we use are market based approaches and we can not only provide our opinion of value, but we can show you exactly how we got there.
3. Confidential Offering Memorandum
A professionally prepared information memorandum is a strong marketing tool in the sale of your business. The confidential offering memorandum is a comprehensive document prepared by Keystone Business Advisors which discusses the value drivers of your business. It is used to help buyers understand the history of the business, operational overview, roles and responsibilities of the management team and/or key employees, customer and market overview, supplier relationships, summary financial information and sustainability of earnings. All of this is done at a fairly high level to maintain confidentiality while sharing enough information about the company to allow the buyer to determine if the business is a right fit. Very importantly, this document allows interested buyers to move forward at a much quicker pace with less time and effort required from the seller.
4. Identifying Buyers
After preparing the offering memorandum, we will identify and compile a list of potential buyers from our database. Over 30% of businesses that are sold by Keystone Business Advisors are buyers that we already have established a relationship with. Depending on the type of business, we will also target strategic buyers in closely related industries which we will contact with your approval.
5. Marketing Program
The KeyStone Marketing Program is designed to reach the maximum number of potential buyers without disclosing your identity. The marketing program includes advertising in various online sources, some of which are geared towards the end buyer while others attract business intermediaries which represent buyers looking for a particular type business. Keystone Business Advisors is also part of a regional and national network of intermediaries which greatly increases the exposure your business will receive. Identifying the motivations of different types of buyers is important part of the KeyStone program. Generally, third party buyers fall into one of three categories;
6. Pre-Screen Buyers
It is important to maintain confidentiality until the buyer has been identified and pre-screened to assess their financial and operational capability and that their intentions are genuine. The initial screening process is designed to confirm that the buyer is in a position to complete the purchase and is motivated to do so. After the buyer has executed a confidentiality agreement and buyer profile, we will provide the buyer with the Confidential Offering Memorandum, provide a company overview and answer any initial high level questions the buyer may have.
7. Sale Process
After a buyer has reviewed the Confidential Offering Memorandum and expressed interest, Keystone Business Advisors will coordinate an introductory meeting between buyer and seller. Depending on the results of the meeting, a buyer may have additional questions and will usually require further information and/or documents. Selected information is supplied ensuring that any sensitive material is withheld until an offer has been made and progressed under the terms of the due diligence. Securing a buyer's trust and confidence is critical to achieving a successful sale. Difficult questions will be asked and you must be prepared with honest, plausible answers.
8. Purchase Agreement
Provided the buyer has been supplied with all the basic information they require, Keystone Business Advisors will work with the buyer and their professional advisors in preparing a Sale and Purchase Agreement detailing the price, terms and conditions of the offer. In some situations, a buyer will prefer to present a Letter of Intent (LOI) to Purchase with commitments to enter into a Purchase Agreement later depending on the outcome of due diligence and/or conditions specified in the LOI. Keystone Business Advisors plays an essential role in negotiating the sale on your behalf and can often recommend win-win solutions that help keep the deal moving forward and increasing the chances for a successful close.
9. Due Diligence
The Purchase Agreement will likely include a due diligence clause, giving the buyer a specified period of time to investigate and confirm that the information supplied is accurate. This is also the Seller's time, with KeyStone's help, to verify the buyer's creditworthiness, qualifications to run the business, and verification of funds to cover the down payment and working capital. The due diligence process can take anywhere from 10 days to 2 months depending on the size and complexity of the transaction. A buyer can terminate an agreement for a number of reasons during the due diligence process, but this is less likely to occur if the Confidential Offering Memorandum is explicit and accurate.
10. Bulk Sale Escrow
In most cases, Keystone Business Advisors will work with an escrow company that specializes in bulk sale transfers to ensure that the business is being delivered free and clear from all liens and is compliant with all local and federal government entities. Escrow will also create the final bill of sale and draft the promissory note and security agreement if seller financing is involved. The escrow process typically takes four weeks and can either be accomplished after in or parallel with the due diligence process.
11. Closing & Transfer
Once all conditions in the purchase agreement and escrow instructions have been satisfied, it will be declared unconditional. Keystone Business Advisors will work to finalize the details required for the closing to take place on a specified date. After closing, the seller will train the buyer for an agreed period of time to facilitate a smooth transition. We can provide you with a list of things that typically need to be done pre and post closing to help ensure a smooth transition.
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