Does This sound Familiar?

You: “I sold my business.”

Your friend: “Congrats! How does it feel?”

You: “I’m exhausted.”

Some business sales are fast and easy, but the emphasis is on some. Most are slow, unpredictable, and tedious. Selling a business is a lot like being hung upside down and shaken, with the shaker (the buyer) repeatedly asking you (the seller) redundant questions. That’s because buyers don’t like surprises and don’t want to take on unexpected risks.

If you’ve never sold a business and you’re considering selling your business, start preparing now. That means engaging professionals (lawyers, CPAs, and maybe brokers or other sell-side advisors) to clean up and make your business look pretty from a legal, financial, and marketability perspective – including creating a market of potential buyers for the business. If you clean it up and create demand, the price may go up. If you don’t, the price may be low or nonexistent (no interested buyers).

Simply waking up one day and deciding to sell to the first interested person is a terrible idea.

On the legal side of things, here’s a short list of things you should start doing now:

• Open up all your corporate legal documents (Articles of Incorporation or Articles of Organization, Bylaws, Shareholders’ Agreements or Operating Agreements, Stock Purchase Agreements, Voting Agreements, Stock Ledgers). Make sure they’re 100% consistent and actually say what you think they say.
• Make sure the company actually owns what you think it owns. Does the company have intellectual property? If employees created it, your company likely owns it by default. If contractors created it, those contractors likely own it by default. Uh oh.
• Make sure you’re allowed to sell the company. Your co-owners, company’s lenders, landlords, and key customers may require you to first get their written approval. Read those contracts.
• Make sure all taxes are fully paid up.
• Make sure there are no lawsuits or threats of lawsuits.
• Make sure no one else may claim part of the sale proceeds (ex-employees or departed founders).
• Make sure the company is registered in every state where it has employees, has an office, or does substantial business.
• Make sure your key employees are actually going to stick around if you sell the business.
• Make sure all of your business licenses are active.

That’s a short list. Each business is different, of course, and a standard preparation list for just about any business is much longer. The more legal issues you clean up in advance of a sale, the more professional and attractive your business will look when you’re selling, and the more likely you’ll get the price you expect to get.

Alright, your legal documents are in order, you’ve engaged your CPA and other advisors, and you’re ready to go to market. As noted above, consider trying to drive interest in a pool of potential buyers as more demand means a higher price. This is where the value of a good broker or other sell-side advisor comes into play: they should be able to build the pool and present the best options from that pool to you.

Once you get some interested buyers, get ready to sign NDAs. From there, the interested buyers will start asking questions and for basic information – most likely your company’s key financial reports. If those check out, then you may get an offer of interest. This is going to be a letter of intent or something similar. This will mostly include non-binding terms, but there will be binding terms – for example, the length of the due diligence period, the exclusivity period, and the termination clause – that you should carefully negotiate. You don’t want to get stuck in a long exclusivity period only to find out your preferred buyer isn’t who you thought they were and then you’re back to square one asking the other buyers you courted for a second chance.

But, if all goes well, a signed letter of intent means you’ll be knee deep in due diligence with your preferred buyer. This is where the shaking-you-upside-down happens. You’ll be asked 10x the questions you were asked before signing the letter of intent, and you’ll meet the caste of gatekeepers on the transaction. This is usually where things slow down and costs go up.

Who are the gatekeepers? These are the people who can stop the sale. Here are common examples:

Seller | Buyer | Seller’s Broker | Buyer’s broker | Seller’s Lawyer | Buyer’s Lawyer | Seller’s Landlord | Buyer’s Landlord | Seller’s Lenders | Buyer’s Lenders | AND…. Escrow Agent

And here are examples of how they act as gatekeepers:

The landlord doesn’t want to return your company’s security deposit. The deal stops. The buyer wants to hold back part of the purchase price because they don’t like something they found in due diligence. The deal stops. The buyer’s broker is on vacation. The deal stops. Your lender’s key staff person just quit her job. The deal stops. The escrow agent needs proof of loans being paid off. The deal stops. The landlord’s lawyer is very busy and you can’t get him to respond. The deal stops. You get the drift. Get ready for the unexpected as you’ll need every gatekeeper to line up simultaneously and agree all their checklists have been satisfied in order to close the sales. Business sales rarely close on time, and they usually cost more than you planned for. That’s just the reality.

So, how do you avoid that outcome?

See 👆 (clean up your company on the legal and tax side of things). Also pay off unnecessary debts in advance, get your landlord’s consent in advance, sell to an all-cash buyer (doesn’t need a lender), be patient, responsive, and realistic, and surround yourself with smart, competent advisors.