How to sell my business

The stages of a sale, in order

To sell a business, an owner works through six stages in order: a written view of value, preparation of the company, a list of qualified buyers, confidential marketing, the comparison of offers, and due diligence through closing. Selling a small business is less a single event than this sequence, and much of the price an owner receives is decided by how well the early stages are done, long before an offer arrives.

The order matters. An owner who approaches buyers before the records are ready, or signs a letter of intent before comparing alternatives, gives up leverage that cannot be recovered. Each stage below links to the part of the firm's five-part series that covers it.

Know what the business is worth

A buyer prices a small business by taking what it earns for its owner and multiplying that figure by a number that reflects how risky those earnings are. For an owner-run company, the earnings figure is usually seller's discretionary earnings: profit, plus the owner's salary, plus the personal costs the company pays, plus genuine one-time expenses. Revenue describes the size of a company; earnings are what a buyer purchases.

Before speaking to any buyer, an owner should know the likely range of value and what moves it. How a business is priced sets out the arithmetic on one page, and the estimate at how much is my business worth applies published sale data to the owner's own figures. Wild Rose Advisors also prepares a written assessment of value, with its assumptions stated, at no cost and without obligation.

Learn the language of a sale

Between the first conversation and closing, an owner will hear terms that buyers and their counsel use every working day: add-backs, the multiple, the indication of interest, exclusivity, the earnout, the seller note, the working capital peg. The term that goes unasked is often the one that costs the owner most, so each is worth understanding before it appears in a document. The language of a sale defines them in one table.

Prepare the company

Preparation is the stage owners most often skip and the one that most affects the price. Serious buyers request substantially the same documents: financial statements and tax returns, revenue by customer, contracts, licenses, payroll, the lease and the insurance record. What buyers will ask for explains what each document proves.

Assembled before any buyer is approached, these documents turn every known problem into a disclosure rather than a discovery. A problem disclosed early is priced once and set aside. The same problem found during diligence invites the buyer to ask what else was not mentioned, and to reprice. The firm's readiness work addresses what buyers price most, and the guide to what buyers look for sets out each quality in turn.

Find buyers in confidence

A founder-owned company may draw three kinds of buyer: strategic acquirers already in the sector, private equity firms building or adding to a group, and private investors, including individuals buying a company to run. Each prices the same company differently. A strategic acquirer may value what the company adds to its own operations; a private equity firm values the earnings and how they can grow; an individual often values a company that will support a living and a bank loan. Selling your business to private equity covers the second kind in detail.

Confidentiality is part of the method. Wild Rose Advisors never places a company on a public listing service, and no party is approached without the owner's approval. The first document a buyer sees does not name the company; identifying detail follows only a signed confidentiality agreement, which the NDA explained describes. Why public listings so often fail is set out in why most listed businesses never sell.

Compare offers and read the letter of intent

Buyers approached in parallel produce offers that can be compared, and a price set by comparison is generally stronger than one set by a single bidder. The comparison is on terms, not on the headline: how much is cash at closing, how much is an earnout or a seller note, how much is held in escrow, how the working capital peg is calculated, and how long the owner must stay.

A letter of intent is usually non-binding on price and binding on exclusivity. Once it is signed, the company is off the market while the buyer verifies everything, and leverage moves to the buyer, so every term that matters is negotiated before signature. Reading a letter of intent lists the questions to ask first. Where a full sale is not the right answer, Wild Rose Advisors sets it beside a minority investment or a recapitalization, so the owner chooses with every option priced.

Due diligence and closing

Due diligence is the buyer's verification that the company it agreed to buy is the company described: the books against bank statements and tax returns, the contracts, the licenses, the lease and the people. It is where unprepared sales reprice. The owner's main task here is to keep running the company: results that slip during diligence are the one finding an owner cannot dispute.

Closing turns the letter of intent into a purchase agreement, with representations and warranties the owner stands behind after the sale, and a closing statement that accounts for every dollar. Diligence and closing covers this final stage, and how long it takes to sell a business explains what makes each stage longer or shorter.

Selling with an advisor or alone

An owner can sell a business without representation, and some do. The usual cost is not bad faith on the buyer's side but the absence of comparison: a single bidder sets the price, and the owner negotiates earnouts, escrow and working capital for the first time against a counterparty who negotiates them routinely. Wild Rose Advisors represents the owner and puts strategic acquirers, private equity and private investors in competition for the company. The full sequence is set out on the sell-side page.

Common questions