In any case, remember that the estimate is just a guide. Your buyer is ultimately the one who determines the value of your business when they decide what they are actually willing to pay. The buyer is also looking for a profit, which means that the amount they are willing to pay will usually be slightly less than the appraised value. Go into negotiations knowing how much you’re willing to compromise on price.
3. Qualify potential buyers
This next step may not seem important if you already have a buyer lined up, but interest is not enough to run a successful business. Furthermore, you owe it to the business you’ve built, your own reputation as a business owner, and all the employees you have to make sure the buyer of your business is qualified to keep it going.
👉 There are a few questions you should ask right away when an offer is made:
Screening your buyer with these questions can help you ensure that your business is in good hands moving forward.
4. Draft and sign a letter of intent
A Letter of Intent (LOI) is a document that confirms the buyer’s intention to purchase the business and the terms and conditions of the sale.
👉 There are a few key things that should be included in the LOI:
- Your full name and your buyer’s full name.
- The nature of the purchase.
- The exclusivity period that exists for negotiations (how long the buyer has to complete the purchase before looking for other buyers).
- Assigning responsibility for various costs associated with the sale (confirming who pays what).
- A cash-out clause that allows the buyer to withdraw from the transaction at any time if they are not given the expected profits.
- Terms of closing the transaction.
The LOI may also be preceded by a confidentiality agreement to keep details of the sale confidential. Check out the BDC Guide to LOIs for more information. However, you can also find letter of intent templates online I strongly recommend working with a lawyer to draft this document.
5. Negotiate and finalize the sale
Now that you have the basic structure laid out for sale, it’s time to negotiate the details of the final agreement. This is a larger legal document that finalizes the details of the purchase and transfer of ownership, including:
- Names, addresses and contact details of both the seller and the buyer.
- A claim clause that specifies whether these negotiations are exclusive.
- Agreed purchase price.
- Payment and financing structure, outlining whether the purchase will be made all at once or in installments + payments at the end of the term.
- Complete list of assets to be purchased, including appraisals and warranties.
- List of intangible assets for any intellectual property related to the sale.
- Termination clauses that set out whether each party can terminate the sale and, if they can, under what circumstances the sale can be terminated. Termination fees will also be listed here.
- Closing Conditions and Costs, including Cost Allocation. Note that the costs are usually split equally between the buyer and the seller.
- Earnouts points out whether the seller can expect any future payments from the success of the business.
- Confidentiality agreements to protect sales details.
- Indemnification clauses that shift post-sale costs or losses from the buyer to the seller.
Definitive agreements are also often supported by a number of other documents, such as non-compete agreements and lease or rental agreements for any property being transferred.
Because of the complex nature of final agreements and supporting documents, you should work closely with both your own attorney and the buyer’s attorney at this stage. This will ensure that all terms are fair and comply with local laws and regulations.
Your step-by-step sales business plan
Skipping the broker when you sell your small business can help you get the most out of your business sale, especially if you already have a buyer lined up. However, even with a buyer, you need a lot of work 🧑💼 to make the sale go smoothly. Here’s a template plan you can use when closing the deal:
Most of all, be sure to take your time and do the paperwork properly, with the help of a lawyer and CPA where applicable.