How to Sell a Small Business without a Broker

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Selling any business, whether big or small, will require the services of an attorney, a CPA, and a broker to mediate the transaction. Of these three mediators, the broker is perhaps the most active during the entire exchange process, making him a key part of the transaction.

It goes without saying that the success of a business sale largely depends on the broker overseeing the deal. It might be something a business owner would want to handle personally instead of outsourcing the task.

However, surveys show that business brokers are successful at what they do because they reject 70% of the business owner that contact them, as they consider most businesses unsellable. That’s quite a large number, which makes getting a broker to handle the sale of your small business relatively slim. On the bright side, you could change all that if you’d handle the transaction yourself.

There are many reasons why an entrepreneur would want to sell his business without a broker. Aside from the obvious; cutting down transaction costs like broker fees, which are usually 6% to 12% of the sales price, a couple of other scenarios make sealing a business without a broker an ideal choice.

Some of these include having an already established relationship with the buyer, selling in a distress sale scenario, and not finding a good broker.

In this article, we’ll give a step-by-step guide on how to sell a small business without a broker. Also, we will highlight some mistakes you should avoid when trying to sell a business yourself.

Step-by-Step Guide to Selling a Small Business without a Broker

If you’ve decided to sell your business without a broker, here’s a 10-step guide to help you through the process.

The procedures are very simple and easy to replicate; even though you might encounter minor variations in completion depending on your country, it’s still fairly the same process.

Step #1: Evaluate your Business

A business evaluation is the first step in any business sale process, perhaps even the most important.

If you don’t have that yet, you need to get it before proceeding with anything else. A business evaluation helps you create a benchmark to set a reasonable asking price for the business. More so, you can use your business valuation report to secure the buyer’s finance – you don’t want to be dealing with a potential buyer that can’t afford to purchase in the first place.

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You ideally want to have your business valuation done by a certified valuation analyst. Hiring one to do the freelance job will cost within the range of $4000 to $6,000.

Suppose, after the valuation, you are lagging in the valuation gap (valuation gap is the difference between your business worth and what you hope to make from the sale). In that case, you can then proceed to add value to the business before selling.

Step #2: Consult your Attorney and CPA

CPAs and attorneys play a huge role in the sale process. More so, without the help of a business broker to oversee the sale, you’ll need them more than ever. Your CPA and attorney should be aware you’re currently in the process of selling your business.

When the time comes, the CPA will advise you on responding to due diligence requests from the buyer. Beforehand, he will have to analyze your financial statements to make sure they’re buyer ready and also highlight tax implications from the sale.

The attorney will be playing a key role during the negotiation phase of the sale. He will sign a Letter of Intent (LOI) and finalize the agreement you reach with the buyer. You ideally want him to know about your deal terms and parts that you consider non-negotiable; it’ll aid his judgment in finalizing any offer from a buyer.

Step #3 Get your Business Ready for the Sale Process

Not so fast; now isn’t the time to talk to potential buyers yet; you need to set up so that the business sale is easy to execute.

Sort out all documents that will be requested during the due diligence phase of the deal (which comes much later in the sale process). Make sure your company’s financial statements are without flaws, as that’ll be a key factor for the buyer’s evaluation, whether you have a business valuation done.

Lastly, you want to make sure you start from a position of strength; it’ll help maintain the buyer’s trust during the sale process.

Step #4: Reach out to Potential Buyers

This step can be tricky, especially if you haven’t sold a business before and probably do not know where a pool of entrepreneurs ready to buy out a company might be resting.

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Notwithstanding, a couple of online platforms offer assistance to owners looking to sell their businesses. You can also check out business listing websites like Axial, BusinessBroker, and BizBuySell.

Step #5: Keep the Sale of Your Business Confidential with an NDA

Maintaining confidentiality throughout the process of your business sale is perhaps the most difficult task for anyone who’s looking to sell their business without a broker. The best is to use a Semi-Confidential process and make your potential buyers sign a Non-Disclosure Agreement (NDA) before advancing with the sale.

Here’s a quick Semi-Confidential Process you can follow:

  1. Create a list of potential buyers from your network or pool of entrepreneurs. They may consist of customers, suppliers, or even competitors you find might be interested in owning a business like yours.
  2. Approach all simultaneously and let them know about your decision to sell the business. Also, don’t forget to include the reason for considering a sale in the discussion or email sent.
  3. In the discussion or email letter, make sure you add a timeline for a response, so they don’t think the business sale opportunity is exclusive to them and will always be on the cards. For example: “I’ve contacted multiple potential buyers and hope to have an LOI signed by [date].”
  4. When their interest in the business is established, you can ask why they’d like to buy your business.
  5. Lastly, if there’s an alignment of interests, you can then ask them to sign an NDA before advancing the sale process.

Make sure your potential buyers sign an NDA at this stage regardless of your confidentiality level with your potential buyer. You need to protect sensitive information about your business before anything else.

Step #6: Establish a Confidential Information Memorandum (CIM)

After having your potential buyers sign the NDA, the next is to deliver a CIM to them. The document should contain enough information about the business for them to decide if they’d like to proceed with the purchase or not.

Your offering price hasn’t been pitched out yet, so try not to give all the details on the CIM, just enough to get them interested in proceeding. Just like the business valuation report, you want to have it done before starting the entire process. We’re only mentioning it now because this is the phase where you need it.

Step#7: Have the Potential Buyer Sign a Letter of Intent (LOI)

After contacting a buyer and getting an NDA and CIM signed, the next step is to submit a letter of intent to the buyer. This is the document where you include your asking price for the sale and other key parts of the negotiation.

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The LOI is very important as it saves you all the stress of going through the due diligence phase only to find out your buyer’s bid is nowhere close to your expectations.

Although having an LOI signed does not directly mean a done deal, it’s a great state that lets your buyer know what to expect in the due diligence phase.

Step #8: Enter the Due Diligence Phase

You’ve been making the moves, requesting the buyer to take certain actions to secure their interest in your business, but now it’s time for you to do the same.

The due diligence phase is when the buyer can ask about anything they wish to know regarding the business. It can be ownership documents, income statements, insurance papers, balance sheets, cash flow reports, or anything at all.

Also, if you feel you don’t have enough information on the buyer, you can proceed to inquire about what you wish to know. If, by any chance, you don’t yet know the buyer’s source of funding for the purchase, proceed with your inquiry.

Step #9: Negotiate and Finalize the Agreement

With due diligence done, you are rapidly getting to the final stages of the sale. You will need assistance from your attorney in this phase to make sure you’re in close communication. Your attorney will oversee the final negotiations together with the buyer’s attorney.

Aside from drafting the final agreements, the attorney will also prepare documents like promissory notes, employment agreements, a list of equipment and inventory, payoff liabilities, etc.

Most importantly, you need to pay close attention to the progress by checking on its development regularly to make sure things are going smoothly on both your and the buyer’s side.

Step #10: Close the Deal and Move to Post-Sale Transition

Step 9&10 pretty much goes hand in hand; however, your level of involvement in the post-sale transition is usually stated in the LOI and final agreement you and the buyer earlier signed. Usually, your presence may be needed for about six months or a year after the sale.

Conclusion

According to business brokers in the UK, 90 percent of small businesses are unsellable. However, this stat isn’t to discourage you from trying to sell your business if that’s what you want. Instead, it should drive you to follow the right process like a professional business broker so that potential buyers don’t sleep on your offer.

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