The Process of Working with a Business Broker to Sell Your Business

A good business broker is an important part of the team you will need to assemble to sell your business. They know the market and can help you sell your business for the right value. 

Below, I outline the process of working with a business broker to sell your business.

Important note: These are general guidelines. Each business transaction is unique and has its own requirements, so some of these steps will vary in every transaction.

Stage 1: Introduction, Expectations, and Agreement

• Discovery call—This is the first meaningful contact with your business broker. The plan is to learn about you, your business, and your reasons for selling. The business broker should take some time to provide a high-level overview of the process of selling a business.

During the discovery call I ask a lot of questions. I’ve found that the better I understand the business, the more value I can add in each stage of the process.

• Collection of additional information - After the discovery call, the business broker will provide you with a list of information needed to measure the value of your business.

For most businesses, I follow the valuation method established by the California Association of Business Brokers (CABB). It’s a calculation of seller’s discretionary earnings, and it is tested to determine the value of a business.

• Present Broker Opinion of Value - Based on the information provided by the business owner, the agent will outline what they believe is the value of your business. Depending on the complexity of the business, there may be a cost associated with the valuation. During the presentation, the business broker will continue to educate the seller about the sales process.

Stage 1 Outcome: Determine if there is a fit. Sign a Listing Agreement.

Stage 2: Listing Price and Confidential Business Profile

• Marketing strategy - Once the listing agreement is executed, your agent will create a formal marketing strategy. This includes websites where your business will be listed, outreach to their buyer database, and cold outreach to competitors (if appropriate) and related businesses.

Each business needs a unique marketing strategy. Most brokers will only publish listings to websites and send emails to a static email database. Good brokers will incorporate cold outreach and social media promotion. Without those, the amount of prospective buyers will be limited.

• Listing Price—Your business broker will use the financial information you provided, industry information, and experience to recommend the official listing price. Considering your feedback, the two of you will agree on the price.

• Confidential Business Review (CBR) - This document describes the value of your business, the opportunity it presents to prospective buyers and business financials. It is the cornerstone of the marketing strategy.

Ask your business broker for examples of their CBRs. The CBR is the cornerstone of getting proactive buyers excited about your business. It is the first real impression of your business, and your business broker should take the time to ensure that they produce a high-quality CBR.

Stage 2 Outcome: The listing price is finalized, and the business is listed for sale.

Stage 3: Attracting prospective buyers and qualification

• Connect with prospective buyers - Your broker will receive inquiries based on their marketing outreach. Each prospective buyer must sign a nondisclosure agreement (NDA) before receiving a copy of the CBR.

I often also require a buyer to complete a buyer profile and have a conversation with them before sending the CBR. 

• Narrow the field - Your agent will begin interviewing prospective buyers to qualify their interest, fit, and determine if they meet the financial requirements.

• Meet with prospective buyers - In most cases, the buyers need to speak directly to the business owner. Your agent should participate in these meetings.

Generally, I like to schedule the first meeting between the prospective buyer and seller as a Zoom meeting. It’s less disruptive to business and helps establish rapport between the two parties. After the meeting, if both the seller and buyer feel good about how the Zoom meeting went, we schedule an onsite visit.

Stage 3 Outcome: Offers from qualified prospective buyers.

Stage 4: Negotiation and Due Diligence

• Receipt of offers - Review each offer in careful detail with your agent. Depending on the size of the deal, it's also recommended to get a CPA or attorney involved.

Typically, we use the Purchase Agreement form provided by CABB. Again, it’s a time-tested contract.

• Identify financing sources - The prospective buyer may need outside funding to secure the funds necessary for the purchase. If they require an SBA loan, this is a good time for your agent to connect them with an approved SBA lender.

• Counteroffer - Several areas can be negotiated beyond just the purchase price. Assets, inventory, accounts receivable, and training of the new owner are just a few examples.

• Accepted offer and earnest money - Once both parties have agreed to the terms, it is time for the prospective buyer to submit their earnest money payment.

• Due diligence - This includes seller disclosure, buyer disclosure, all necessary financial, operational, and HR documents.

The primary goal of due diligence is to ensure that the buyer knows what they are getting into and that everything that the seller represents is accurate.

• Approved financing - If they need outside funding, such as an SBA loan, the lender may complete a formal valuation of your business before they agree to fund the loan.

Stage 4 Outcome: Accepted offer and earnest money deposit.

Stage 5: Closing documents and transfer of funds

• Resolve outstanding contingencies - Any unresolved contingencies by the buyer or seller must be resolved and acknowledged.

• Closing documents - An attorney recommended by the agent typically drafts these. The closing documents outline the specific steps needed to complete the sale.

The escrow company will manage most of the closing process. I will track the progress at this stage, but at this point, the buyer and seller have established a relationship and are both working toward the common goal of completing the sale.

• Funding escrow - Once the outstanding items are completed, the buyer or the buyer's lender sends the funds to the designated escrow agent.

• Finalization - All documents are completed, signed, and the deal is funded.

Stage 5 Outcome: The seller receives their funds.

Reminder: These are general guidelines. Each business transaction is unique and has its own requirements. Therefore, some of these steps will vary in every transaction.

If you are looking for a business broker in Sacramento or have questions about buying or selling a business in Sacramento, contact us for a free consultation.