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Stages Of Selling an American Business
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The changing of the business ownership contains various stages with some timeframe. This depends on the type and location of the business. However, broadly the business professionals consider these are the common stages for transferring the ownership of the business.
Pre Hot Stage I (Contains Ground)
- Seller and Broker creation of Agency relation ( 1 to 3 days)
- Receive and review the Seller documents by the Broker ( 1 to 3 days)
- Approaching the professionals to evaluate the fair market value of the business ( 3 to 5 day)
- Preparation of Sales Brochure, start advertising in the media.
Hot Stage II (Marketing Work)
A. Phase I (Hot Wave)
- Initial marketing, this is a crucial stage consists of 30 to 60 days. Most of the prospective buyers approach the Broker, as this is the New Business in the Market and if the presentation is good, the seller will get an offer.
- There are Buyers and constant solicitation, but there is no offer indicates either price is unrealistic or low returns with high risk or Unprofessional presentations or Tight Financing Market condition.
B. Phase II (Mixed Wave)
This is a second phase of marketing work that consists of 60 to 180 days. The Broker is getting calls, but there are no written offers.
Reasons for not getting an offer at this stage:
- Unprofessional presentation
- High down Payment
- Unrealistic price
- Low returns
- Highly fluctuated profits
- Moderate degree of risk and viability of business
- Shorter the leases
- Zoning changes
- Tight Financing Market etc.
C. Phase III (Cold Wave)
This is a third phase of marketing work that consists of 180 to 360. The Brokers call frequency reduces significantly from the buyer, and decreases the buyer’s motivation towards this business that is dropped significantly.
Reasons for not getting offers at this stage:
- Improperly evaluated and leaded to Unrealistic price
- Longer time in the Market
- Unprofessional presentations
- Less marketing
- No proper follow up with prospective
- Non-cooperation among the Brokers
- Non availability of documents for verification and due diligence
- Short lease
- Title issues
- High degree of risk
- Poor locations
- Non cooperative sellers
- Negative cash flow
- Declining Market
- Differences in the stated statements and verified documents etc.
- Zoning Changes etc.
Post Hot Stage III
This is third and final stages of marketing which consist of 1 year to 2 years or even more. There are no calls to the Broker.
Reasons for not getting offers at this stage:
- No proper Marketing
- Improperly evaluated business value or Unrealistic price.
- Longer time in the Market
- Unprofessional presentations
- License and permit restrictions
- No proper follow up with prospective
- Non-cooperation among the Brokers
- Non availability of documents for verification and due diligence
- Short lease
- Title issues
- High degree of risk
- Poor locations
- Non cooperative sellers
- Negative cash flow
- Declining Market
- Differences in the stated statements and verified documents etc.
- Zoning Changes etc.
- No or Non availability of documents
- AS IS sales
- No Good Faith work
- All cash offers
- No lease
- Poor condition of property etc.
Offer Stage
Irrespective of the above stages, the post offer stage, will apply if the seller receives the offer. The broker will display in the market as a sale pending or in contract, hence most of the buyer do not call the broker for this business.
In this stage, the seller receives an offer, accepted and approved by the buyer terms and conditions, and the seller verifies with his agent, and reviews the buyer financial and pre qualifications, buyer satisfactorily completed due diligence, satisfied with records. Typically, this part anywhere between 7 to 15 days. Then all concerning parties will agree to open an escrow, to fulfill the functions of Fully Executed contract. The Close of Escrow will vary from anywhere between 25 days to 6 months depending upon the nature and type of the business. This includes the permits, franchise approvals, lender approvals, etc. At the time of Close of Escrow all parties will review the final documents, reads and approves and with consent of all the escrow company will close escrow successfully.
If you are interested, to know more about stages of selling a business or transferring the ownership of the business, please email us at help@bizworldusa.com, or contact us on 415-234-8833, one of our approved business professional consultant will contact you.
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