You may only sell your own business once in your life, or a few times at most. I have done it a number of times myself, for example I sold a webshop in cosmetics articles and an online marketing-technology agency (Marketing Guys). That experience has taught me a number of things that I like to share with other SME owners. That can save you a lot of time, money and energy. An important aspect to realize is that only 20% of the companies for sale are sold!
What steps do you go through when selling your business?
To successfully sell your business, it is important to understand the steps involved. In this blog I will explain them one by one. To sell your business successfully, you typically go through the following steps:
- Prepare and ask why you want to sell
- What exactly is your company worth?
- Choice: Do you hire a business broker?
- Preparing your information memorandum
- Finding potential buyers
- Negotiating with a potential buyer
- Due diligence and the data room
- The agreements surrounding your work after the deal (earn-out, or not?)
Prepare and ask why you want to sell
It is important to realize that selling a business takes about 6-12 months. However, it is important that you prepare well, and that preparation can take you even longer. In the preparation you prepare the company sales. Think of putting your contracts in order, preparing your team for business operations without you as owner and optimizing finances.
One of the most important things is ensuring that the business can operate without you as the owner. The BestBonobos platform helps you take the right steps. Inside the platform you receive an Action Plan to guide you through the process.
What exactly is your company worth?
As an owner, I always used to be quite optimistic about the value of my companies. And that is what most owners do. They tend to overestimate the value of their business. That is why it is important to value your company objectively.
There are several valuation methods, such as the EBITDA multiple method or the Discounted Cash Flow method. For a more detailed explanation you can read our earlier blog.
One of the advantages of BestBonobos is that you can receive a free valuation based on both methods. You upload your latest financial statements or enter them manually and answer several relevant questions. This valuation gives you insight into the value of your business, the assumptions used, and recommendations for your Action Plan.
The valuation is free and available without a credit card when you create an account within the 7 day trial period.
Choice: Do you hire a business broker, or not?
An important decision is whether or not to hire a business broker. Many entrepreneurs I speak with end up disappointed after hiring one. Why? Because as a seller you often assume the broker already has a shortlist of buyers, does most of the work, and that you have little to do yourself.
In reality that is often not the case. The brokers I spoke with did not have a shortlist. They asked me to provide all the information so they could create an information memorandum and then list my company on a business marketplace.
That meant I still had to do most of the work, while also paying significant fees. Did you know that a business broker typically charges a retainer of $15K to $50K and a success fee of 5 to 15 percent? Even if your business does not sell, it can still cost tens of thousands of dollars.
I therefore decided to do it myself.
There can certainly be reasons to hire a broker. For example in complex situations with multiple holding structures, very large deals above $10M, or industries with specific legal complexities. But in about 90 percent of the cases it is not necessary.
If you decide not to hire a broker and sell your business yourself, one option is to list it on a business marketplace. But how do you make sure you sell successfully and on your own terms? That is exactly why we built BestBonobos. The platform guides you through the steps and ensures you are fully prepared for your sale.
Preparing your information memorandum
Whether you hire a broker or not, you will need an information memorandum (IM) and an anonymized one page summary to inform potential buyers.
An IM is typically a document of about 10 to 20 pages that explains your business in detail to potential buyers. It includes the business model, market, customers and financials. The appendices often include additional materials such as organizational charts, product photos, team information and office locations.
If you are not sure where to start, a BestBonobos account can help. The platform guides you through 10 steps to create the brochure, after which you can download it.
Once prepared, you can list your business on a marketplace. However, if you do not want to depend solely on that, it is also wise to actively search for buyers yourself. The good news is that your future buyer may already be in your network.
Finding potential buyers for your business
Let me be honest. A business broker does not have a secret list of people interested in buying your company. So how do you find potential buyers?
It starts with a number of questions you ask yourself as the owner. These questions help you build a long list of potential buyers. Think of team members, investors who have approached you before, competitors, and current suppliers.
There are more than 15 questions brokers typically ask to build this list. Within the BestBonobos platform we built these questions into the system so you can easily create your own long list.
This long list becomes the basis for a short list. Based on the names you provide, the AI suggests look alike companies and other organizations that may be interested in acquiring your business.
We also provide explanations about why a specific party could benefit from acquiring your company, including the strategic rationale. Each potential buyer is also scored based on fit.
Negotiating with a potential buyer
Once you find a potential buyer from your shortlist or a buyer approaches you through a marketplace, the conversation begins.
It is important to sign a Non Disclosure Agreement (NDA) first. If the discussions become more serious, you will usually move toward signing a Letter of Intent.
Then comes one of the most exciting parts of the process: the negotiation. Proper preparation is essential. Our platform also helps structure and prepare you for this phase.
Due diligence and the data room
The good news is that you are almost at the end of the sales process. The bad news is that about half of all deals still fall apart during this phase.
The main reason is poor preparation. During due diligence, the buyer carefully examines your business. Any risks that are discovered can be used to renegotiate the price or deal terms.
That is why transparency from the beginning is extremely important. Always be honest about the situation of your company from the first conversations onward.
This prevents unpleasant surprises later in the process that could cause the deal to collapse or lead to a significantly lower price.
During due diligence a data room is created where the buyer can review documents. To help you prepare, the BestBonobos platform includes a fully structured data room environment where you can upload and securely share documents with the buyer.
Agreements about your role after the deal
The final important question is what your role will be after the acquisition and whether you agree on an earn out period.
Buyers usually value stability and may ask you to remain involved for a period after the sale. That period can sometimes be two to five years. It is important to be prepared for that.
Buyers may also want to structure part of the purchase price as an earn out. In that case, a portion of the final payment depends on the company achieving certain targets after the acquisition.
It is important to remember that after the sale it is no longer your company. You will no longer be in control. Many entrepreneurs therefore decide whether or not to accept an earn out based on the influence or role they will retain.
Are you thinking about selling your business?
If so, you are entering an intense but exciting period. It may be a good idea to create a trial account at BestBonobos. It will give you clear insight into the value of your business.
And if you decide to sell your business yourself, the platform helps you do it in a structured way and on your own terms.
Start your free trial here:
