A business sale is unlike any other type of transaction. It is imperative that you prepare properly and understand what to expect before you begin. In this review, we discuss an 13 step process for selling a business in Dallas, TX.
Step 1: Choose a Dallas Business Broker
Unless you have deep industry connections, an extensive amount of available time each week, and a real estate license, then you should work with a Dallas business broker. There are simply too many complexities involved with selling a business in Dallas, and you risk selling for far below market value (or not selling at all) without professional help from a broker.
When you choose your business broker in Dallas, consider their level of local experience, their success rate, and how they are paid. Ideally, you should choose a broker who has experience in your area and industry that has proven results and works based on success fees (rather than upfront fees).
Step 2: Determine Your Company’s Value
Your broker will first determine the worth of your company. This should be more than an opinion of value. Instead, they should use a market approach, which analyzes sales data for the Dallas area within your industry. A market approach also considers non-financial factors that may impact a buyer’s offer price. For instance, if your company has excellent growth potential and an established workforce that knows how to run daily operations, then you may receive a much higher valuation than the rule of thumb data and your financial numbers initially indicate.
Step 3: Decide Your Goals and Long-Term Vision
Your valuation allows you to plan your sales approach and timeline. Keep in mind, it is not always the right move to sell as soon as possible. In some cases, you may benefit by improving your company and subsequently raising your value before you hit the market.
Also, during this third step, you should set your goals for the sale. For example, if you are ready to retire and do not want to help much during the ownership transition, then this should be made clear upfront. This can help ensure you choose a buyer who already understands your industry as well as gives you a chance to train your employees to take over your daily role.
Also, it can help to determine your long-term vision. For example, perhaps you want to sell your home and move closer to your children and grandchildren. Whatever the case may be, establishing your future goals and desires can help you remain focused and avoid second-guessing once you fully dive into the sales journey.
Step 4: Collect Your Company Documents
There are a range of documents you will need to sell your business in Dallas. These documents are needed for a multitude of purposes. For starters, your business broker will request some of your financial documents to formulate your company’s value. Additionally, the buyer will request them during due diligence, so it is better to prepare them ahead of time to ensure a smooth process later. The most noteworthy documents you will need to gather include:
- Business license(s)
- Patents and trademarks
- Federal tax returns
- Profit and loss (P&L) statements
- Balance sheets
- Cash flow statements
- Employee lists
- Asset lists
- Customer lists
- Supplier lists
Keep in mind, this is not an all-inclusive list. You will need to discuss your precise needs with your business broker, attorney, and accountant. It may seem time-consuming to collect the documents, but it can save you a fair amount of time once you market your company and throughout due diligence.
Step 5: Create a Confidential Information Memorandum (CIM)
A confidential information memorandum (CIM), or more broadly referred to as your sales memo, is a document that displays the most important information buyers need to know about your company. It may hide your business name and specific location within the Dallas area, along with hiding other specifics that you prefer to keep private until a buyer signs a letter of intent (LOI).
Your business broker can create your CIM for you and present it to potential buyers on your behalf. Additionally, and importantly, your business broker should also create a non-disclosure agreement (NDA). Anyone who views your CIM should sign an NDA; this helps protect the confidentiality of the sale.
Step 6: Seek Potential Buyers in a Confidential Manner
The pre-marketing stage may seem like a fair amount of work (and it is). However, taking the time beforehand to plan and properly prepare paves the way for a smoother, more efficient, and more successful company sale. Once you are ready, the next step is to find a buyer. As discussed, your broker should maintain confidentiality. This is accomplished by only leveraging private channels. This could be in the form of private databases, websites (via confidential listings), and the broker’s personal connections and contacts. Your broker should also be careful about what is included in your CIM and use NDAs appropriately.
Step 7: Screen Offers, Negotiate, and Choose a Buyer
Offers will come as the broker reaches out to potential buyers via various private channels. Your broker’s role is to screen the offers. For instance, they may ensure that each potential buyer in the Dallas area is qualified and able to fulfill their offer amount either through financing or paying directly. Depending on your business type and industry, potential buyers may need to be primarily located in the Dallas area as well. Licensing requirements may also apply. For example, if you are selling a physical therapy center, then the buyer must have a PT license.
Of course, negotiations also take place. In fact, the final accepted offer may look much different than the initial ones. Remember, the buyer wants to secure the best deal possible for themselves, so they are not likely to offer exactly what you are asking initially. With the right negotiation tactics, however, your broker should ensure you receive full market value. Ultimately, you will accept the offer that you are most comfortable with. This is not always the highest bidder, especially if there are other important considerations, such as a buyer who already understands your business type and does not need help from the seller after the purchase is complete.
Step 8: Have The Buyer Sign a Letter of Intent (LOI)
After you choose a buyer, you should have them signed a letter of intent (LOI). This outlines the terms of the accepted offer and can later be used as a template for the purchase agreement (see step 10). An LOI is generally a non-binding agreement, and it is typically contingent upon the successful completion of due diligence.
Step 9: Follow a Due Diligence Roadmap
A due diligence roadmap is a process that the seller’s business broker usually provides that details the steps that should take place during the due diligence process. This is beneficial for both parties. For the buyer, it helps them ensure that no important steps are skipped, which could otherwise affect them later on after the sale is complete. It also helps the buyer feel more comfortable with the purchase. Also, the buyer can use the information they learn during due diligence to plan the first steps they take once they own the company.
For the seller, a due diligence roadmap helps ensure the process moves along quickly. This is important as it minimizes the risk of major delays in closing and/or the cancellation of a deal on behalf of the buyer. In far too many cases, a buyer backs out of a deal due to unforeseen circumstances, such as a pending divorce they were not planning for when they initially made the offer. Also, since the buyer prepares themself extensively and learns more about the company through a thorough due diligence roadmap, the seller can feel confident that the buyer will do a good job once they take over and minimize the responsibility of the seller during the transition.
Step 10: Draft The Purchase Agreement
A business purchase agreement is a binding contract that states the terms of the transaction. It covers a variety of topics, not the least of which are the purchase price and payment method. In many cases, the LOI is used as a template for the purchase agreement if there were no changes made during due diligence.
Step 11: Close The Sale
The buyer and the seller will sign the purchase agreement at closing. First, the seller’s attorney and the buyer’s attorney may review the contract to ensure there were no last minute changes by either side.
After the purchase agreement is signed, which legally solidifies the transaction, the buyer will make the payment. There are several ways this may be done. The buyer may pay the seller directly via wire transfer, cashier’s check, or another verifiable method of payment.
In other cases, the buyer may put the payment in escrow, and the escrow agent may release the funds to the seller after the purchase agreement is signed by both parties. In the event there is financing, a member of the buyer’s loan institution may attend closing as well. If there is seller financing, then the buyer will only make the down payment for the company during closing.
Step 12: Transfer Ownership of The Company
After the payment, the seller can then begin transferring ownership of the company to the buyer. This involves a multitude of steps. Everything from updating utility information to transferring patents must be done during this stage. Notably, the seller will also need to update any legal information related to the business, insurance policies, and lease agreements as well.
The seller will also need to give the buyer full access to all company facilities, equipment, etc. Additionally, the seller will notify all employees, long-term customers, and suppliers that there has been a change in ownership during this step as well. They may introduce the buyer (the new owner) to everyone and provide the buyer with a complete tour of all facilities, offices, etc.
Step 13: Seller Training (if Applicable)
Lastly, the seller will need to fulfill their training obligations. This is discussed and negotiated during the offers, negotiation, and due diligence stages. In some cases, the seller may not have any obligations, particularly if the company is in a good position to function without the owner and the buyer already has experience within the industry and business type.
However, in most cases, there is some level of training that is required. This can involve the seller remaining on-staff for up to a year, either on a part-time or full-time capacity. However, in more cases, the seller offers consulting services, which typically can take place remotely. After training, the obligations from the buyer and seller are complete.
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As locals to the Dallas community, we take genuine pride in helping our neighbors with their exit strategy. We provide free, no-obligation business valuations for Dallas business owners. Contact us today if you are contemplating your exit strategy and would like more information and a free valuation for your company.