Expectations When Buying or Selling a Business

The process of buying or selling a business is a significant decision with many variables to consider. Both buyers and sellers should be prepared for the stages involved in such a transaction. This document provides a simple overview of the main steps and minimum time considerations to set some high-level expectations.

Initial Interest and Research

Time Consideration: Weeks to months.

• Buyers: Start by identifying potential businesses that fit your criteria. Consider factors like location, industry, size, and financial health. Perform preliminary research to gauge the viability of the potential acquisition.
• Sellers: Prepare your business for sale by getting your financial records in order, evaluating assets, and possibly getting a business valuation.

Initial Negotiation and Letter of Intent (LOI)

Time Consideration: 1-4 weeks once deal has crystallized with all necessary terms including financing sources.

• Buyers: Once you have identified a potential business, express your interest formally. This often involves drafting a non-binding Letter of Intent, which outlines the proposed price, terms, and structure of the deal.
• Sellers: Review the LOI carefully. You might accept, reject, or negotiate terms.

Due Diligence

Time Consideration: 30-90 days.

• Buyers: The due diligence phase involves a thorough examination of the business’s finances, operations, legal compliance, and more. It is your chance to confirm that the business matches its description and to uncover any potential issues.
• Sellers: Provide the required information and documentation. Stay available to answer questions and provide clarifications.

Purchase Agreement

Time Consideration: 1-4 weeks.

• Buyers: With due diligence complete, work with your legal team to draft the final purchase agreement. This legally binding document will detail all terms of the sale and connect the various other agreements and instruments required to close the deal.
• Sellers: Review the agreement, possibly with your legal counsel. Any final negotiations should take place before signing.

Financing & Escrow

Time Consideration: 3-8 weeks.

• Buyers: If you are not purchasing the business outright, you will likely need financing. This could be from a bank, private investors, seller financing or some combination of each of them.
• Sellers: If providing seller financing, be clear on terms and interest rates.

Parties should consider use of an escrow service or parties’ counsel to ensure funds and business assets are transferred smoothly.

Closing the Deal

Time Consideration: 1 day to 1 week.

• Buyers and Sellers: Meet in person, telephonically or virtually to finalize the transaction. All necessary paperwork is signed, funds are exchanged, and the business changes hands.

Post-Sale Transition

Time Consideration: Weeks to months.

• Buyers: Often, the seller will assist with transitioning the business to ensure continued success. This might involve training, introducing you to key employees, clients, and other stakeholders, or explaining specific operations.
• Sellers: Fulfill any agreed-upon post-sale responsibilities. This could include training the buyer, facilitating introductions, completing assignments or approvals, or assisting with any immediate post-sale issues.

Takeaway:

The sale of a business is a complex process, requiring both buyers and sellers to be diligent and proactive at each stage. Proper preparation, transparency, and clear communication can promote a more streamlined and successful transaction.

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