Congratulations. You followed sound advice and fortified your company’s value by gathering all your valuation data. You are ready to let go of your business and look forward to those ocean sunsets and worry-free enjoyment of your golden years. Or you just might be thinking of staying in the game as a consultant or volunteering for the SCORE program.
You may have received a tempting unsolicited offer to purchase your business from a competitor or one of your vendors, or a business broker. You moved carefully and got good legal advice. Now it is time to go into overdrive and do what is necessary to close the deal.
You have avoided the common seller mistakes, e.g., selling to the wrong buyer and not knowing the value of your business. You are ready for the next step, which is to engage in the time-tested professional process of divesting your life’s work and legacy with a clear conscience while protecting your financial interests and your loyal employees after you leave.
The Professional Steps to Selling Your Business
After the “eyeball and handshake” and meeting of the minds with the prospective buyer, it is customary for the buyer to prepare and sign a letter of intent—which at this stage is non-binding. Next, the buyer conducts a due-diligence investigation, followed by a purchase agreement and buyer financing—at which point the deal closes, and you can lay down your burdens and bask in the warm glow of accomplishment.
Not so fast, though. As they say, the devil is in the details. You’re selling off an important part of who you are, and now is not the time to delegate. Let’s review the major steps—as well as pitfalls to avoid–in the sale of your business:
Letter of intent (LOI). Here is where the buyer memorializes in writing the terms and price previously—and informally—agreed upon. The buyer must promise confidentiality so that they can investigate your company further in the due diligence phase.
Beware that even if the LOI displays the bold-caps label of NON-BINDING, signatories have a “duty of good faith and fair dealing” that could be referred to in subsequent disagreements or disputes—mastering the details, avoiding the risks, and understanding the nuances of an LOI—and the traps and pitfalls of confidentiality.
The LOI moves the deal forward from informal communications to ultimate execution. The document must contain a reasonable amount of detail and set the pace for the rest of the process. Anticipate exchanging several drafts before the final LOI is acceptable to all parties. The standard time frame for negotiating and completing the nonbinding letter of intent is 30 to 60 days.
Due diligence. After the letter of intent is signed, both the buyer and the seller have a limited amount of time (up to 90 days, usually) to investigate each other thoroughly and discover whether they should proceed with the deal. This is where the details of the purchase agreement are negotiated.
During this stage, the buyer will examine your company in detail to ensure its condition is as your valuation and other disclosures indicated. Investigators may also do a bit of social and reputational querying of partners and employees to get a flavor of your company’s working style and track record. If everything checks out, the buyer will work on arranging any needed third-party financing of the deal.
The purchase agreement results from the due diligence hashed out by lawyers and are based on existing mortgages, outstanding loans, or reciprocal financing between the parties. This may also require supplementary contracts for after-the-sale consulting or non-compete agreements.
Compliance with the laws of the state. If you are selling a company that has creditors, most state laws require those creditors to be notified before the sale so that the creditors can do their due diligence and protect their interests.
Then there are the interests of your shareholders to be considered. Some states require that both your and the purchaser’s stockholders approve the transaction and that minority interests be allowed to cash out. Both parties may also be required to obtain tax certifications, comply with state licensing laws, and pay transfer or sales taxes.
Closing the deal. Within about 3 to 5 days after completing the due diligence and purchase agreement phase, this is where the business changes hands. Typically completed by attorneys, here is where the buyer transfers the agreed amount of cash to your bank and consummates the shares or stock consideration agreements.
Managing Your Business in the Interim Period
Plan on a minimum of three to six months from that informal agreement until the close of a transaction. As you are winding down and preparing to transition from boss to retired person, you must keep your eye on the ball and not let the performance of your business deteriorate. If you have done everything correctly—beginning with a competent business valuation—your business and financials will remain solid, and buyer’s remorse won’t be a factor.
Your Role After the Closing
As a successful business operator, your many years make you a valuable resource, especially if you become “retired but not tired.” Whatever involvement with the business after you sell depends on what you and the buyer agreed upon. You could stay involved in day-to-day operations or maintain some paid or unpaid consulting relationship.
The best answer to what you should do after selling your business is basically “whatever you want to do.” The challenge is not the process but deciding on the destination. Even with a golden parachute, reaching that destination requires a thoughtful, step-by-step plan rather than an abrupt plunge.
There is plenty of advice available. You became a successful business owner through research, planning, and execution. Employ those same tactics in figuring out what to do in your retirement.
If you have done your business valuation and have found an interested and qualified buyer, your steps in selling your business begin with an LOI, followed by due diligence—with financing and preparation of the purchase agreement. Your creditors, shareholders, and home state all have their own interests and legal requirements as well.
Your final step is closing the deal, cashing out, and transferring shares. While the sale is pending, it is important to keep the business on a steady course and avoid the natural tendency to slack off because of your impending retirement.
Whatever role you choose in your retirement years depends on what you want it to be. Remember, however, that you have a lifetime of irreplaceable business acumen and experience and can still contribute in whatever capacity you choose well into your retirement years.
Not There Yet? Quantive Can Help
Your plans for closing the sale of your business should begin with choosing the best business valuation approach. Quantive can value your business for a flat fee with a comprehensive report. You’ll be proud to show any prospective buyer Contact us and begin your journey to a successful closing.