What Is It Actually Like to Sell Your Business?

One of the questions I get most often from business owners is simple: What does the process actually look like to sell my company?

It is a fair question. Most owners have spent years learning how to build and run a business, but very few have ever sold one.

The easiest way I have found to explain it is to compare selling a business to something most people are already familiar with: selling a house.

The numbers are bigger and the diligence is more involved, but the basic process is surprisingly similar.

It Starts With a Conversation

When you sell a house, you may decide to list it for sale, or someone may approach you directly and ask if you would consider selling.

Businesses work the same way.

Some owners make the decision to go to market. Others are approached by a potential buyer and are simply open to having a conversation.

At that point, nobody has committed to anything. The buyer is trying to understand the business, and the owner should be evaluating the buyer just as carefully.

Who are they? Why are they interested? What would happen to my employees and brand? Would I need to stay involved? And, of course, what might they be willing to pay?

The Buyer Makes an Offer

If there is mutual interest, the owner will typically share some basic financial and operational information, usually after signing a confidentiality agreement.

Once the buyer has enough information to evaluate the company, they may submit a Letter of Intent, or LOI.

Think of the LOI as the business equivalent of an offer on your house.

It outlines the purchase price and the major terms of the proposed transaction. The seller can accept it, reject it or negotiate it.

If both sides agree and sign the LOI, the deal effectively goes “under contract.”

That is when the real work begins.

Due Diligence Is the Home Inspection

When someone buys your house, they do not just send you the money after you accept their offer.

They inspect the house. Their lender may order an appraisal. The title company makes sure ownership can legally transfer. The buyer finalizes financing.

The same thing happens when someone buys a business.

The buyer conducts due diligence to make sure the company they agreed to buy is actually the company they thought they were buying.

They will review the financials, customer and revenue mix, employees, contracts, leases, licenses, legal matters and how the company operates.

There may also be a Quality of Earnings, or QoE, review performed by an accounting firm.

Despite the name, the concept is fairly simple. If the company is represented as generating $2 million of annual earnings, the buyer wants to verify that those earnings are accurate and sustainable.

Think of the entire diligence process as a very thorough home inspection.

The buyer is trying to make sure there are no major surprises before closing.

The Attorneys Put the Deal on Paper

While diligence is happening, the buyer's and seller's attorneys work on the final purchase agreement.

The LOI is the outline of the deal. The purchase agreement is the detailed contract.

It spells out exactly what is being purchased, what liabilities remain with the seller, what each side is agreeing to and how different issues will be handled after closing.

This part can become technical, which is why I always recommend sellers have an attorney with actual M&A experience representing them.

Then You Close

Once diligence is complete, the legal documents are finalized and all the closing requirements have been satisfied, the transaction closes.

Documents are signed.

Funds are transferred.

Ownership changes hands.

In that sense, it really is a lot like selling a house.

You have an interested buyer, you receive an offer, you go under contract, the buyer performs an inspection, everyone works through the legal and financial details, and eventually you get to the closing table.

The obvious difference is that instead of handing over the keys to a house, you may be transferring ownership of something you spent 20 or 30 years building.

That is why price is rarely the only thing that matters.

Most owners also care deeply about what happens to their employees, customers, company name and reputation after they sell.

Choosing the right buyer can be just as important as negotiating the right price.

Do You Need a Broker?

This is another area where the real estate comparison works.

You can hire a real estate agent to sell your house, or you can sell directly to an interested buyer.

You can do the same thing with a business.

Some owners hire an investment banker, business broker or M&A advisor to market the company and run a competitive sale process. Others already know the buyer they want to work with and negotiate directly.

There is no universally right answer.

Even if you sell directly, however, you should still have experienced legal and tax advisors representing you.

The Process Is Less Complicated Than It Sounds

M&A terminology can make selling a company sound intimidating.

LOIs. QoEs. Working capital. Purchase agreements. Due diligence.

But underneath all of that terminology is a fairly straightforward process.

You talk to a buyer. They make an offer. You agree on the major terms. They inspect the business. The lawyers document the deal. You close.

There are plenty of important details along the way, but an owner does not need to become an M&A expert before considering a sale.

You simply need to understand the process, surround yourself with good advisors and make sure you are comfortable with both the deal and the people sitting on the other side of the table.

After all, you may spend your entire career building your business.

But you may only sell it once.

If you are thinking about selling your business, even if you are not sure you are ready, I am always happy to have a confidential conversation about what the process could look like, what your business may be worth and what options you have.

You do not need to have made a decision to sell. Sometimes the best first step is simply understanding what a transaction might look like before deciding whether it makes sense for you.

If you are curious about your options, reach out. I am happy to talk.