Steps to Sell your Business Yourself
1.Valuing the Business
This is where the bankers do an impeccable job by evaluating and assessing your business correctly. When you are doing it yourself you will have to do it with the same expertise too.
When you are selling, you might be tempted to predict a humongous growth in the future, however, do not overdo the projections unless you back it up with some income guarantee such as a long term contract or an IPR or anything that truly differentiates your company from the rest.
The idea is to market your USPs better rather than talking about growth without any proof and data.
Conduct Due Diligence Internally
This is something that you would need to do in order to stay prepared for sale. Once you have put up a proposal for sale and the buyer wants to conduct due diligence himself and your business fails the inspection, it may get rather embarrassing for you.
To avoid such a situation, ensure that you conduct due diligence internally and do it with an honest mindset of a buyer. Make thorough checks on all your data in the data room. This would ensure all the loopholes and the vulnerabilities are exposed on time so that you can remove them or fix them before the actual due diligence process starts. At times, when you conduct due diligence internally, you might even find that your business may not even be ready for a sale yet.
So, make sure you are prepared with your checks and balances and answers by conducting due diligence internally.
Preparation of Documents
The next step is to prepare documents and to prepare them nicely. This is where bankers add value by preparing expert memorandums of sale, but you can find numerous sales memorandum samples online. Just ensure you download a good one and go through the required level of detail.
Ensure these memorandums are voiced in the third person and you refer to your business as “the business” and not “we” or “us”.
There is a complete list of documents that you will need that includes:
- Financial statements for the last 3 years (preferably audited)
- Tax returns
- Seller’s other earnings and cash flow
- A detailed list of all inventory
- A complete list of all equipment, fixtures, and furnishings with detail of the value
Not a big deal for your accountants!! You just need to tell you, accountant, to work on getting these documents and they should be able to do it.
Sourcing – Identifying the potential buyers
Once all your documents are ready, the next step is to look for a potential buyer. Look for people within your domain as generally businesses working in the same domain like to expand and take control of a similar business rather than touching something that is completely new to them.
Sit down and make a list of genuine prospective buyers. Then point out and outline why you feel someone should buy your business? Make presentations if needed or something that would prove that your business is worth it.
But make sure when you are going in for the deal you are prepared with your data and answers.
Negotiations and the Closing Process
At this stage as per the norm, a buyer will always offer you a lower price than what you might have requested. They also may want to get into a payment arrangement that will be a combination of a lump sum amount that may be paid upfront, followed by some instalment payments along with the other payments based on the way your business performs after closing.
At this stage, it is always advisable to bring in your accountant so that he can do the required math and give your buyer the payment plan. If the buyer has offered future payments it would be better to conduct due diligence on them as well so that you know they are capable of making your payments.
So though investment bankers are the experts in taking care of all these M&A processes, there is no reason why you cannot sell your business yourself. This post explains pretty much the same.