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How to Sell a Business

Selling a business in America is one of the most complicated and cumbersome processes. The sale of a business starts from the day a business is established and continues through the life cycle of the business. You may be the owner for a period of time in the life cycle of the business or you may be the only owner for the entire life cycle of the business. In either case, when an owner wants to sell a business, the process will be similar for the sale of an American business or exchange of ownership.

The business can sell either by owner (SBO) or professionals (brokers/agents). In the current world the SBO percentage is very low, as selling a business requires a lot of marketing, documentation, and the involvement of many people. It is associated with a lot of legal issues, clearances, disclosures, and the possibility of arising post sale complications and lawsuits before the expiry of statutory limitations.

Businesses are selling by professionals who are licensed and have hands on experience. They have sound knowledge on marketing, legal requirements, rule and regulations, maintenance of privacy, network with all other associated business professionals, etc. Their effective marketing and secure selling will give peace of mind to the seller. Hence most sellers will hire a brokers/agent to sell their business.

Once you decide to sell a business these are the common methods used to sell the business.

  • Creation of agency relationship: When you hire a professional who has experience in the selling of businesses, you prefer local business professionals since they have more local knowledge than other professionals. By this you are building an agency relationship with a broker, i.e. you are the principle and the broker is your agent.
  • Listing agreement: Make a listing agreement with a broker for the sale of a business and check the terms and conditions before you sign such a contract. Check the period, fees for the service, type of contract, protection clause, breach clause, and other related clauses. Ask the business professional to give you copies for your records.
  • Review of seller’s business documents: As soon as you sign with a professional, please make available all the financial data documents of the business and other associated documents for review and to prepare the marketing materials. Keep all books and records updated and make the business premises neat and clean. Make sure all the equipment is in working condition.
  • Business valuation: Get the valuation report from a licensed professional who is an expert and specialized in business valuations so that you will know the value of the business.
  • Sales brochure: Once you have the data and valuation report, prepare the marketing material highlighting the selling points of the business.
  • Marketing: Once the marketing material is ready, list it on internet sites such as BizWorldUSA.com, Multiple Business Listing Alliance, Business Listing Alliance, and Business Listing World, etc.
  • Target area marketing: Send your marketing flyers to the targeted community areas via mail and also place flyers in the areas to reach targeted people.
  • Buyer calls: After you send the flyers and marketing materials you will get calls from prospective buyers to get more information about the business.
  • Pre-screening buyers’ calls: When you get a call from a buyer, before releasing information, verify whether they qualify to buy that business or not.
  • Confidential agreement: Once you pre-qualify a buyer, ask them to sign a confidential agreement to receive the seller business information.
  • Visiting the locations: It is always a good idea to make an appointment with the seller before going to see a location. All parties i.e. buyer, buyer agent, and seller should be at the business premise at the same time the buyer is visiting.
  • Review of reports: Once buyer like the business location and other associated business things, then the buyer and broker have to go through all available reports.
  • Meeting with owner: Once the buyer has read and understood the business documents, make an appointment with the seller to go through the given business documents and also to get clarifications for all of the buyer’s questions. Also the buyer can see other reports and personal documents. The seller can tell about the how the business is doing, future developments, and the growth of the business.
  • Present an offer: Once the buyer is satisfied with the seller’s business and provided documentations, then the buyer will present an offer to the seller to buy the business with all of their terms and conditions.
  • Negotiations: If the offer price is low or the terms and conditions are not acceptable to the seller, then the buyer and seller can negotiate on the price, terms, and conditions of the offer.
  • Final contract: Once the buyer and seller agree to the terms and conditions, a final contract will be made and signed by all parties, including brokers.
  • Due diligence: Once the buyer and seller sign the contract the buyer will start due diligence according to the contract and they can hire a professional to conduct the investigation.
  • Review of due diligence report: Once the buyer has completed their personal investigation and reviewed the hired professional reports and they are satisfied, then the buyer will remove the contingency and move to the next step of the contract.
  • Open escrow: In most cases the escrow will open upon satisfactory completion of due diligence. The escrow will be conducted either by an escrow company or an attorney’s office with escrow services. The escrow officer will prepare all necessary documents based on the instructions of all parties, all parties will sign, and the document will be sent to the appropriate areas for clearance.
  • Apply for the license and permits: As soon as all parties sign the documents, the buyer will apply for all necessary business loans, licenses, and permits, and if the buyer wants any extra licenses, the buyer will starts applying for those also.
  • Review the escrow reports: The escrow company will send all the reports received by them. The buyer and seller go through them and if they have questions, they can discuss with the broker or concerned parties. If all are satisfied then the seller and buyer can give escrow instructions for final papers.
  • Final inspections and inventory count: The buyer and seller do final inspections of the business premises to check everything is there according to the contract and call the inventory company to find out the exact value at that time in order to pay the seller.
  • Signing of documents: All parties involved in the transaction will sign the final closing documents and the buyer will deposit all necessary funds to close the escrow.
  • Close of escrow: With consent and approval of all parties, the escrow company closes the escrow by transferring the title to the buyer from the seller and all the documents are recorded at the appropriate authorities. All the monies will be dispersed as per the agreed net sheet.
  • Post-close training: As per the contract the seller will provide training to the buyer regarding the business from A to Z.

If you want to know more about how to sell a business, have further questions about selling a business, or need assistance selling a business, please contact us at help@bizworldusa.com or 510-556-1600 and one of our approved business selling professionals will contact you.