HOUSTON BUSINESS REVIEW

Tutorial On Selling Your Business: The 12 Step Process
By Ralph Fain

Ralph Fain is a principal in the R/ Fain Group, a professional business brokerage firm which confidentially represents the interests of sellers/ buyers of “Mainstreet to Mid Market” companies (revenues from $1MM to $25MM). Mr. Fain has over 20 years of broad business experience with Fortune 500 companies as well as with small/medium sized companies and has served in various capacities including Controller, Vice President, and President/CEO. Each week he will provide comprehensive information on the many aspects of buying/selling businesses.

               In our past articles regarding the selling of businesses we have touched upon many details of this exercise and its many complexities.  We have discussed the details ranging from preparing the business for sale to enhancing the value of the company to negotiating the best price to Letters of Intent and the Due Diligence process to Closing.
               Sometimes what gets lost in the details is the macro perspective - the overview of the process.  Accordingly please find below a summary overview of the 12 steps involved in the selling process

1. Initial decision to sell – this step is many times the most difficult to take.  There is an understandingly emotional attachment to the business on the part of the owner – “the business is me and I am the business”.  The business owner must carefully consider this step to avoid seller’s remorse at a later date.
2. Hire/engage competent professionals who can assist you in the evaluation and appraisal of your business.  The very rare business owner may be able to accomplish this on his own but that is a most extraordinary exception.  As this will be the largest financial transaction in which you will participate, you need to have as much professional guidance/assistance as possible.
3. Perform an audit/due diligence of your business including the gathering of all documents which you anticipate the buyer might require/need  - are the requisite systems and procedures in place; do I have all the financial and accounting records/reports which may be needed; is there an organization chart with job descriptions/functions; are there up to date listings and valuations of inventory and FF&E; etc.
4. Preparation of a Selling Offering or Confidential Offering Memorandum – this is a detailed document prepared for prospective qualified buyers which details, among other things, the history of the company, ownership, products/services, sales/marketing strategies, financial history, prospects of/threats to the company, etc.  This is a very detailed, comprehensive, multi-page document.
5. Market the business – the first step in this marketing process is to identify all qualified, potential buyers; the second step is to design a marketing strategy (including advertising) to reach that universe of buyers; the third step is to successfully execute (and modify where necessary) that strategy.
6. Meet with, provide information to, negotiate with and receive offers from interested qualified buyers.  This step alone can take much time (and time away from the running of the business), depending on the size and complexity of the transaction.
7. Qualify those buyers who have made offers or who are otherwise finalists in the process.  Due Diligence is not just conducted on the Seller and the company.  For a number of reasons (including possible seller financing), it is critical that Due Diligence be conducted on the prospective buyer – know with whom you are doing business.
8. Negotiation/execution of the Letter of Intent from prospective buyers - reference our recent article on this subject, “More Fundamentals on Selling – Part II”, June 2006 Issue No. 1 in HBR.
9. Due Diligence by Buyer – provide documentation, access to records, etc so that buyer can thoroughly research and review the company it is to buy.  It is absolutely incumbent upon the seller to extend its complete and full cooperation to the buyer in order to satisfy any and all questions and issues the buyer may have.
10. Determine the structure of the sale, preparation of the Purchase Agreement, and execution of the Purchase Agreement.
11. Satisfy any and all conditions to the sale as agreed to and as detailed in the Purchase Agreement.
12. Closing of the sale – formal closing (similar to the closing process regarding real estate except generally more complicated) to be conducted at title company or attorney’s office.

               As the informed reader can ascertain from the above, the selling (and buying) of a business/company is a comprehensive, time consuming, and complex process and is not be lightly undertaken.  Correspondingly, the most important step in this exercise (other than the decision to sell) is that which is outlined in Step No. 2 – the engagement of knowledgeable and competent professionals to guide and assist the seller (and the buyer) in the selling process.
               As always see you in this space for our next discussion.  Should you have any questions or require additional information please feel free to contact the R/ Fain Group at 832-646-0832 or via our web site.