If you’ve never sold a business, you may envision the closing date as the day you finally pop the champagne and bask in your reward for years of hard work. The reality of what sellers can expect before the closing date, however, may look a bit different.
While some business owners feel a sense of euphoria and relief at the closing table, most show up physically and mentally worn out. (There’s a reason it’s referred to as “exhaustive” due diligence.)
At best, the day of closing is typically a mixed bag.
In this article we’ll offer an example of what the timetable looks like as you approach the closing date for the sale of your business. We’ll also discuss some common emotional issues that can creep in as the closing date approaches and you prepare to leave your business.
6-Month Business Sale Process Example
There is no cookie-cutter process for selling a business. Every deal is different. With that said, there is a general timeline that most merger and acquisition (M&A) professionals adhere to. The sale of your business may happen faster — or take longer — but the following is a typical example of how long it takes to sell a business, culminating with the date of close:
Month #1 of the Selling Process: Marketing and Prep
Prepare Confidential Information Memorandum (CIM), Teaser, and any other marketing materials that will be provided to qualified buyers. Fill the data room with all information supporting the CIM, as well as initial due diligence items like financial statements and tax returns for the last three years.
Month #2 of the Selling Process: Buyer Search
Initiate a local, regional, and/or nationwide buyer search. Qualify all interested potential buyers. Invite qualified buyer candidates to schedule initial phone interviews or introductory next steps with sellers.
Month #3 of the Selling Process: Review Offers and Choose
Continue discussions with top buyer candidates. Pause the process and ask top buyer prospects to submit a non-binding Letter of Intent (LOI) or Indication of Interest (IOI). Accept the best offer from the most qualified buyer.
Months #4-5 of the Selling Process: Due Diligence (DD)
Move into the due diligence phase of the sale process. Expect buyers to focus first on financial due diligence before operational and legal. If they — and their advisors and lenders — are not satisfied with the financials provided, they will either “retrade” the deal (i.e., alter the purchase price and terms) or terminate the process.
During due diligence, the buyer’s attorney will be simultaneously drafting the first turn of the Definitive Agreement (either a Stock or Asset Purchase Agreement). The LOI will specify how long the buyer has to deliver the first draft of the Agreement and complete their due diligence. It’s customary to allow 45-60 days.
Month #6 of the Selling Process: Complete DD and Close Transaction
Complete any outstanding due diligence items that must be completed prior to the closing date. This can include:
- Taking a physical inventory
- Inspecting all vehicles, equipment, and real estate
- Completing buyer’s financing arrangements
- Finalizing all legal documents transferring ownership
- Meeting with suppliers and key customer accounts
- Negotiating working capital targets, employment agreements, stay bonuses, and any contingent financing agreements (i.e. seller notes, escrow holdbacks, earnouts)
- Informing key stakeholders and employees
- Planning for immediate post-sale transition issues
Arrangements will have been made for when the closing will take place, as well as where and how all legal documents will be signed. Funds are also typically dispersed on the day of close.
As you can see from the timeline above, the process of selling a business really heats up after an LOI has been signed with a buyer. This is when the due diligence process begins in earnest, and attorneys for both buyer and seller become heavily involved. The closer you get to the closing date, the more time- and document-intensive the process becomes.
This is when the stress begins to set in.
Mixed Feelings Are Common as the Closing Date Nears
Business owners often describe selling their business as a job in and of itself. The closer you get to the closing date, the more intense and demanding that job becomes. In addition to the administrative burdens involved in getting a transaction closed, there are some conflicting emotional issues that tend to creep in as the closing date looms large. These may include:
Anxiety Around Telling Employees
The extent to which employees, particularly senior management, are involved in helping an owner with the sale process varies. But most owners wait until the sale is all but certain before telling employees.
Will they be upset or alarmed by the news? Will they be angry or feel like you’ve let them down? All of these worries can and should be addressed with the buyer and your deal team (business broker, attorney, CPA) prior to notifying employees. There are many ways to inform employees about a sale. Experienced business brokers and M&A advisors are good sounding boards for how to handle this delicate matter.
Trepidation About Life Post-Sale
For most business owners, selling a business means an entirely new lifestyle. Your day, weeks, and months are no longer structured around your business. You won’t call yourself the owner of your business anymore; you’ll have passed that baton to someone else. Uncertainty and change — even positive change — can be unsettling. You’re starting a new chapter and heading into the great unknown.
Second-Guessing the Decision to Sell
Trepidation around your post-sale life can lead to second-guessing your decision to sell your business. There may be a small part of you that wonders if you should hang on another year, or two or three — grow the business and sell it for more.
Second-Guessing the Buyer
It’s not uncommon for sellers to feel a bit of paranoia as your business exit starts to become a reality. It feels like the buyer and their deal team are hammering you with constant requests. No information you provide seems to be enough. Is this worth all the trouble? What is the buyer trying to uncover? Do they not trust you, your business, your deal team? Maybe they’re not the right buyer after all.
While it may seem like the buyer is being relentless in their demands, this is normal. The best buyers do an extremely thorough job in their financial and operational due diligence.
Second-Guessing the Deal
In addition to purchase price and payment, the deal structure outlines certain obligations — on your part and the buyer’s — that need to be satisfied after you’ve relinquished ownership. As the lawyers work out the details, you may wonder if this is such a good deal after all. What if the buyer fails to meet their obligations after the sale? Could you structure the deal to save more in taxes or put more money in your pocket? Are you getting the short end of this stick?
Again, surrounding yourself with a stellar deal team will go a long way towards alleviating these concerns — all of which are common. Nobody gets everything they want in a deal, but your advisors are there to protect your interests and make sure all of your concerns are addressed.
Excitement About Life Post-Sale
The majority of the sellers we work with are selling because they’re ready to leave business ownership behind and do something else. For some, that means funding retirement and enjoying full-time leisure. For many, it’s an opportunity to do all the things they haven’t had the time (or the money) to do: travel, spend more time with family, pursue passion projects, or work for a favorite nonprofit organization.
Selling your business brings newfound freedom. The world is your oyster!
Rely on the Experience of Good Advisors
Most owners realize that selling a small business is a difficult process. Getting your business sold is a months-long process that gathers steam as the closing date approaches.
The process goes a lot smoother when you hire a seasoned deal team and rely on them to help you navigate the financial, operational, and legal aspects of ownership transfer. Most business owners only sell a business once. This is not the time to go it alone.
When the day of closing does arrive, congratulate yourself for accomplishing a feat that few entrepreneurs ever experience. You did it!
Reach out to the advisors at Allan Taylor & Co. if you’d like to learn more about the selling process. We can help you prepare yourself and your business for a smooth and successful sale process.
Barbara Taylor is the co-founder of Allan Taylor & Co. You can follow her on LinkedIn.
