The Complete Process to Sell Your Business from Start to Finish

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Are you ready to handle the challenges of selling your business? Start by checking your financial records and personal goals, just like Twilio did in their smart sale.

Our team at G-Squared Partners helps you gather experts, such as an investment banker and tax advisor. We guide you to sort documents, value your business, market it privately, negotiate deals, and close smoothly. Learn our step-by-step plan to get the best results.

Key Takeaways:

• Check your business finances and personal goals first. Then gather records for easy valuation.
• Build a team of advisors to value your business right. Make a private summary to attract buyers.
• Negotiate offers that come in. Support buyer checks and finish with solid papers for a smooth handover.

1. Assess Business Readiness

Selling a business starts with checking if you're ready. Look at how your operations and finances are doing.

Well-prepared sellers get 20-30% more for their business, per U.S. Chamber of Commerce research. This prep also cuts staff changes after the sale-and building a business exit strategy from scratch offers a step-by-step approach to maximize these benefits.

Evaluate Financial Health

Start checking financial health by reviewing statements that follow standard rules (called GAAP). Normalize your EBITDA, which means adjusting profits before interest, taxes, wear-and-tear, and other costs to show true earnings.

Companies with steady revenue growth over 15% each year get higher sale prices, says Deloitte's reports on company buys and sales.

Quality earnings show ongoing profits. Adjust for one-time costs to find them.

Take a SaaS company, which sells software online and makes $5 million a year. Add back one-time legal fees of $200,000 and owner perks of $150,000 to the $800,000 EBITDA. This gives a true EBITDA of $1.15 million.

Use this simple Excel formula to normalize: =EBITDA + One-Time Expenses - One-Time Income.

The process should adhere to these structured steps:

1. Audit three years of finances. It takes 2-4 weeks. Hire an outside CFO (chief financial officer) from sites like Upwork if needed.
2. Compare key performance indicators (KPIs), like 20% profits, to industry norms. Use BizMiner reports, about $150 each.
3. Predict free cash flow with a Discounted Cash Flow (DCF) model in Excel. DCF values future money today.

Many miss owner perks in checks. These extras boost costs and hide real profits.

Define Personal Goals

Set personal goals to match your sale with future dreams. For example, keep your business legacy with a handover plan.

70% of sellers pick equity rollover to stay involved, per PwC's family business survey. Rollover means keeping some ownership shares.

Clear goals lead to 15% quicker sales and 20% more satisfaction, says Harvard Business Review. This helps protect your business legacy.

John Silvestri from Craveworthy Brands teamed up with a wealth manager for a 100-day handover plan after sale.

He kept $2 million in shares to skip $1.5 million in taxes from cashing out fully. This move protected his brand and saved money.

To achieve similar outcomes, consider the following steps:

1. List your top three non-money goals, like keeping staff. Do this in about one hour.
2. Hire a wealth manager for tax-smart plans. Fees run $5,000 to $10,000. Don't forget feelings, like family roles.

2. Organize Documentation

Sorting documents speeds up buyer checks in mergers and acquisitions (M&A). A ready file room cuts sale time by 40%, per EY's study.

Gather Financial Records

Ready to get organized? Start here to make selling your business smoother.

Get your financial records together by pulling 3 to 5 years of audited statements and future forecasts. Tools like QuickBooks let you export data in less than 2 hours if your firm makes $10 million a year.

To ensure an efficient process, adhere to the following numbered steps:

1. Collect profit and loss statements and balance sheets using software such as Xero or QuickBooks (subscription ranging from free to $70 per month). This preparation step typically requires 1 to 2 days; refrain from relying on incomplete tax returns to maintain compliance with IRS Publication 583 guidelines on record-keeping.
2. Compile key performance indicators (KPIs), including customer retention rates (targeting 80% or higher), through Google Analytics (free). Incorporate growth drivers such as revenue per user, allocating 2 to 4 hours to prevent data silos.
3. Develop forward forecasts in Excel. Use scenario modeling, for instance by assuming a 10% revenue growth in the base case. This process demands 4 to 6 hours; a frequent oversight is neglecting non-GAAP adjustments, which may result in disputes with investors in accordance with SEC regulations.

3. Determine Business Value

Figuring out your business value sets up strong negotiation in mergers and acquisitions, or M&A deals. According to PitchBook data on 2023 U.S. sales, multiples ranging from 4 to 8 times EBITDA are typical for mid-market deals (our Business Valuation Multiples by Industry guide provides deeper insights into variations across sectors).

Choose Valuation Methods

Selecting valuation methods such as Discounted Cash Flow (DCF) or comparable sales can produce a business valuation ranging from $2 million to $10 million

To compare the principal methods, please review the following attributes for valuing a technology firm akin to Twilio:

Check out these key methods to value a tech firm like Twilio:

Valuatum software, priced at $99 per month, is recommended for conducting precise calculations. A Harvard Business Review study shows the DCF method offers top accuracy in shaky markets. This keeps your valuation solid even when things get unpredictable.

4. Assemble Advisory Team

Assembling a professional support team, including an investment banker from a firm such as G-Squared Partners and a tax advisor from Optic Tax, can increase sale proceeds by 25%, as indicated by a KPMG study on the impact of professional support in business transactions.

Best practices for assembling this team include the following:

1. Engage an investment banker at an early stage for transactions valued at $5 million or more (with fees typically ranging from 1% to 5% of the transaction value); These pros create a confidential memo to find and draw in potential buyers.
2. Retain a tax advisor, such as Crystal Stranger or Rachel Barton at Optic Tax (at an hourly rate of $300), to structure the transaction in a manner that favors capital gains treatment over ordinary income, potentially resulting in tax savings of up to 20%.
3. For deals under $5 million, use a business broker who also handles attorney tasks. They charge 8% to 12% commission and reach out to buyers, like experts at Allegiance Capital or Dan Casarella.
4. Appoint an attorney to handle non-disclosure agreements (NDAs) and ensure regulatory compliance (with flat fees generally ranging from $10,000 to $20,000).

Start building your team 6 to 12 months before the sale.

Take Sidharth Ramsinghaney. He led a team that nailed a $15 million sale for Craveworthy Brands and hiked the deal's worth.

5. Market the Business

Keep your business marketing quiet to pull in big strategic buyers and private equity groups. A well-made confidential memo often brings 3 to 5 solid leads in just 60 days, based on CO- benchmarks.

Create Confidential Teaser

Create a confidential teaser. It is a 1-2 page overview that hides the company's name. It highlights key growth drivers.

growth drivers are factors that help the business expand.

Design it professionally with tools like Canva. This takes 4-6 hours.

The standard structure starts with an overview of the industry. It covers key metrics like 25% year-over-year revenue growth and 30% EBITDA margins. EBITDA means earnings before interest, taxes, depreciation, and amortization.

It ends with teaser stats like customer base size, without specific details. Example: "Midwest SaaS firm with $8M revenue and 30% margins, seeking a strategic buyer for operational integration."

Follow these steps to build the teaser:

1. Work with an investment banker to draft it. Allow 2 days for changes.
2. Share it under an NDA using platforms like DealRoom. This costs $500 per month. NDA is a legal agreement to keep information secret.
3. Track views. Aim for at least 50 impressions.

Keep intellectual property safe. This means company ideas and inventions.

Follow SEC Regulation D rules to avoid sharing too much. SEC is the U.S. agency that regulates securities.

Identify Potential Buyers

Find 20 to 50 possible buyers. Include strategic ones from related industries.

Private equity firms like Allegiance Capital focus on M&A deals. M&A means mergers and acquisitions. They like companies that keep over 15% of customers.

1. Build a list using LinkedIn Sales Navigator. It costs $99 a month. Spend one week filtering by M&A activity, related industries, and company size like CO. Aim for 50 leads.
2. Prioritize prospects according to synergies in growth drivers, such as opportunities for shared market expansion. For instance, Rachel Barton's team at G-Squared Partners identified 10 viable candidates for a consumer packaged goods brand by evaluating revenue streams and technology stacks.
3. Initiate outreach through personalized email communications that emphasize mutual benefits, aiming for a 20 percent response rate within two to four weeks.

Many miss cultural fit between companies. This causes 40% of deals to fail, per U.S. Chamber of Commerce.

Track progress with CRM tools like HubSpot. CRM means customer relationship management. This boosts close rates by 30%.

6. Handle Offers and Negotiations

Deals often include earn-outs over 1-3 years. Earn-outs pay extra based on future performance. Add seller financing for 10-20% of the price. This closes 30% more deals, says Bain & Company.

Deals face challenges. Here are key issues and fixes:

1. Lowball Offers Buyers often offer too little. Use sales data from BizBuySell.com to push back.

   For $1M EBITDA, demand 7x multiples. SaaS benchmarks are 6x-8x per PitchBook. This raises offers by 20-30%.

2. Stalled Earn-Outs Fights arise over metrics. Set clear KPIs like 15% revenue growth in the deal.

   KPIs means key performance indicators.

   For instance, in entrepreneur Dan Casarella's $10 million exit, a 20% earn-out was linked to customer retention KPIs, as detailed in Harvard Business Review case studies, thereby promoting mutual alignment.

3. Financing Issues Buyers hesitate on money. Offer to finance 10-20% yourself at 5-7% interest. For a $1M note at 6%, earn $60K a year. This avoids big taxes and helps close deals.

   This gives $60,000 yearly interest. It beats paying 37% capital gains tax right away under IRS rules.

7. Conduct Due Diligence

Due diligence checks all company details. Use lists to organize:

• Financial records
• Legal papers
• Operations review

Conducting due diligence means giving buyers access to your data room for 30 to 90 days. A low employee turnover rate under 10 percent shows strong operations, as McKinsey studies on mergers confirm.

To optimize this process, adhere to the following structured steps:

1. • Set up a secure virtual data room with Intralinks. It costs about $1,000 per month.
   • Upload over 500 key documents in one week. Include intellectual property filings, financial setups, and statements. This allows safe access for buyers.

   An online space to share sensitive business files securely. Related insight: Best Practices for Keeping Business Sales Confidential.

2. Monitor and address buyer inquiries through Asana (free tier), aiming for a response time of no more than 48 hours to foster trust and maintain procedural momentum.
3. Mitigate potential concerns, such as elevated employee turnover, by presenting a comprehensive retention strategy, informed by established practices from the Sale Readiness Team.

Aim for a 45-day due diligence process. Make sure all regulatory documents are complete and current to avoid problems. Follow tips from the Sarbanes-Oxley Act, a U.S. law that sets rules for financial reporting in public companies, to stay compliant.

This approach cuts risks and speeds up the deal. You'll close faster and with less worry.

8. Close the Sale

Closing the sale wraps up the deal in a 100-day plan.

Focus on stock sales to get lower capital gains taxes of 15-20%, not higher ordinary income rates for asset sales. For those navigating asset sale transactions, follow the advice in our guide on when to use a business broker to optimize the process and potentially minimize complexities. This can save you big, like $500,000 on a $5 million deal. Tax on profits from selling assets like stocks.

Take John Silvestri's sale of Craveworthy Brands for $12 million. John played it smart and kept some skin in the game.

He kept 20% equity for ongoing say and got $9.6 million in cash. His lawyer handled documents for $15,000 in 30 days, following IRS Publication 544 to cut taxes on gains.

Post-closing metrics demonstrated an 18% return on investment following optimizations recommended by tax advisors such as Sidharth Ramsinghaney from Optic Tax and Crystal Stranger.

Key steps in the process included:

1. Sign documents and get the $9.6 million wire transfer. This takes just one day.
2. Plan a 90-day handover. Talk to a wealth manager about long-term financial plans.

Escrow delays happened, but seller financing fixed it. The deal went through without a hitch.