Sell a Business Confidentially

Preparing to sell your business privately can be daunting, but it doesn't always have to be. 

Properly planning how to sell a business with a business exit strategy will help you confidently pass your business into the hands of someone else. 

A great M&A advisor can make sure they complete the process quickly and efficiently while making the transition as smooth as possible for you.

But there are several essential steps to follow putting your business up for sale confidentially, and following these steps will make your job significantly easier, increase your chances of success and achieve your goal in a shorter time frame. 

So, how do you sell your business privately?

Prepare an Exit Strategy

If you want to sell your business privately, you must start by having an exit strategy in place. There are three common 

types of exit strategies when selling your California privately held business, and these are:

• Handing the business over to a successor such as a family member

• Transferring ownership internally, for example, to a key employee

• Selling the business to a third party 

Each option has advantages and disadvantages. With that in mind, it’s worth talking to an M&A Advisor about what exit strategy is right for you. 

Handing the Business Over to a Successor 

The chief advantage of passing on your business to a successor is that it limits third-party involvement. As the business owner, it allows you to stay involved with your lower mid-market business if you’re so minded. 

However, while many lower middle-market companies for sale find this option preferable to selling to a third party, it can lead to tensions, especially when it is a family-run business. 

Transferring Ownership Internally

 

This exit strategy is ideal for mid-market and lower middle-market businesses that want to keep the business intact but haven’t elected a specific successor. 

The benefit here is that your mid-market business can be sold to a managerial team or group of employees, drastically reducing the due diligence you would otherwise have to undertake. 

However, a critical problem arises if the team wants to take over the ownership of the business and has limited capital, like guess who they are going to ask if any finance is available? Yes - that would be you. In addition, it is not only the price of the business the team may need; the team may need working capital to cover the expenses for the first month they take over the running of the business. 

Another critical part of trying to sell the business to a managerial team is whether they can work together and be successful. Running a business is not for everyone; this is the reason there are employers and employees. If the sale is unsuccessful, then the morale of the business will most likely suffer from some key employees choosing to leave therefore needing to be replaced. 

Selling Your Company to a Third Party

 

There are several options open to people with a lower mid-market business for sale. 

When you first put your California business up for sale with a business for sale ad template or with blind advertising, you can choose to: 

• Sell to a Private Equity Group if your business is large enough

• Sell your lower mid-market company to another competitor or Strategic Buyer

• Sell your business to an individual who wants to own and operate their own business 

A sale to a Private Equity Group or PEG is the sale of your business to an investor that will do a deep analysis of the financial statements to realize where they see opportunities to cut costs and typically add this business to a company or companies they have in the same industry. 

• Learn more about how Rogerson Business Services market and attract qualified buyers to your business for sale.

Conversely, suppose you choose and agree to the sale of your lower mid-market business to another competitor or Strategic Buyer. In that case, you sell the business as an Asset sale, and the ownership of your company moves to the buyer and the decisions of the future direction of the business they choose to make. 

Often, when it comes to selling a business privately, this last exit strategy secures the highest value for your business. 

Get a Business Valuation for your California Business Before Selling Privately

Once you’ve settled on an exit strategy, a critical next step before putting your California business up for sale is arranging for business valuation services . This not only shows prospective buyers that you’ve undergone the necessary due diligence required to sell your business privately but also allows you to understand how a third-party lender will see the business if they are asked to provide finance to a buyer. 

As with preparing an exit plan, there are various options to consider when undertaking a business valuation. 

The ways of calculating the value of a business up for sale include: 

• Market Capitalization

• Times Revenue Method

• Earnings Multiplier

• Discount Cash Flow Method

• Book Value

• Market method

All these methods have specific process requirements, and our M&A Advisors can not only help you find the business valuation methods best suited to your lower-mid-market business but guide you through the procedure. 

Documents You Need to Sell Your Business

 

Once you’ve had a business valuation completed, the next step to selling your business privately is ensuring all your paperwork is in order. 

Our M&A Advisor can explain and provide a due diligence checklist so that when you sell your business privately, the buyer receives everything they need. 

A critical document you'll need is the purchase agreement, also called the Definitive Purchase Agreement. The Definitive Purchase Agreement outlines the basic terms of the sale between the buyer and seller as well as Representations and Warranties, Disclosures, Closing date, finance, Consulting and Training, Covenant Not To Compete, and many other items, obviously including the purchase price. 

As you do your due diligence and assemble the documentation to sell your business privately, make sure you have any potential buyer of your business complete a  Non-Disclosure Agreement for the sale of a business or a business sale NDA. 

An NDA requires the buyer to keep all matters confidential. A business sale confidentiality agreement will protect your confidentiality in business. If a buyer breaches that confidential business sale, it can result in monetary penalties. 

 

For this reason, it’s helpful to have not only an M&A Advisor guiding you through the processes but also an Accountant and an Attorney. Make sure the CPA has experience with business transactions as this knowledge is critical. Equally important, only hire an Attorney with business transaction experience.

Finally, if you’re selling your business privately, it’s helpful to have a buyer initially present a Letter Of Intent. This letter does not commit them to purchase the business but it puts in writing important items to both buyer and seller and helps decide whether to keep moving forward with the negotiations. 

How to Identify a Qualified Buyer When Selling Your Business Privately

As you embark on selling your business privately, you’ll come to recognize there are four predominant types of buyers: 

• Buyers with no business plan or funding

• Experienced entrepreneurs

• Investors

• Private Equity Groups or PEGs

If you’re considering selling your lower mid-market business quickly and efficiently, then be open to understanding what is important to each type of buyer and meet any criteria important to you. 

Selling Your Business Privately

 

Finally, with the buyer selected and documents signed, you must decide how you handle the transition. There’s no right way to do this, but it does involve careful consideration of questions such as what becomes of your employees and whether you’re prepared to offer owner finance for part of the sale. 

Often people find that once they’ve sold their business privately they remain involved for part of the transition to establish continuity for the business and employees. This is another question our lower mid-market M&A advisors can help you make. 

Conclusion

Selling a business privately or confidentially involves a variety of moving parts. RBS M&A Advisors, along with the right accountant and legal team, can guide you through the process, so you successfully sell your business. 

As a summary, once you begin to investigate selling your California business privately, make sure your research includes: 

• An exit strategy that meets what is important to you

• Business valuation

• How to sell your business name

• The right Attorney, so the proper documentation is part of the successful sale of your business.

• The type of buyer you are looking for

With the right assistance and documentation, you’ll have successfully sold your business privately in the shortest time possible and, more importantly, so there are no problems after the sale closes. If you have any questions about the process, get in touch. We will be happy to assist you. 

Hiring an M&A advisory firm can go a long way in helping you create an extensive market for your company. An M&A broker also provides you with all the information you need, including how much taxes you have to pay during the selling process.

If you are a retiring business owner looking to exit your lower middle market business in California, here are five tips to get you started:

1. Don't wait until the last minute to start planning your exit. The process of selling a lower middle market business can take a long time, so it's important to start early.

2. Have a clear idea of what you want to get out of the sale. Know your goals and what you're willing to negotiate.

3. Choose the right type of buyer. Not all buyers are created equal, so do your research and find the right one for your business.

4. Be prepared for a lot of due diligence. M&A buy-side due diligence is when buyers will want to know everything about your business, so be ready to provide documentation and answer questions.

5. Be flexible with the terms and conditions of the deal. It's important to be open to negotiation to get the best possible deal for your business.

Rogerson Business Services, also known as, California's lower middle market business broker is a sell-side M&A advisory firm that has closed hundreds of lower middle-market deals in California. We are dedicated to helping our clients maximize value and achieve their desired outcomes. 

 

We have a deep understanding of the Californian market and an extensive network of buyers, which allows us to get the best possible price for our clients. We also provide comprehensive support throughout the entire process, from initial valuation to post-closing integration. 

 

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your lower middle market business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market business or still not ready, get started here, or call toll-free  1-844-414-9600and leave a voice message with your question and get it answered within 24 hours. The deal team is spearheaded by Andrew Rogerson, Certified M&A Advisor, he will personally review and understand your pain point/s and prioritize your inquiry with Rogerson Business Services, RBS Advisors.