An Example of the Sales Process of Selling a Business

October 1, 2023

There are various approaches to selling a business and the following will provide one framework that is typical.  The purpose is to help potential sellers understand the process and to assist in the questions you may have as they begin to think about selling their business.

Step 1. Preparation

Prepare an Introduction Letter or Marketing Brochure An Introduction Letter or Marketing Brochure highlights the key attributes of your company to potential counter-parties and provides a quick overview of the process of selling your business. It is typically used for initial contact with potential counter-parties and provides
non-confidential information in order to understand interest and encourage counter-parties to sign a Confidentiality Agreement.
Prepare form of confidentiality agreement/ Non-Disclosure Agreement A Confidentiality Agreement (“CA”) or Non- Disclosure Agreement (“NDA”) is a document you will want to be executed with interested purchasers prior to exchange of non-public information.  Some key purposes are to ensure non-public information is not disseminated, your sales process remains confidential, key employees are not solicited, provides provisions against counter-parties using your confidential information to harm your business and includes non-solicitation of management and employees.  Typically, a CA is prepared by your legal counsel ensuring all the key elements you want to remain confidential are identified and incorporated into the CA/ NDA you use.
Outline what Constitutes a Qualified Buyer who can enter into a CA/ NDA Who should be able to sign a CA/ NDA and what criteria should they meet?  One way to do this is to understand the qualifications, motivations and financial capability of the potential buyer.  Some buyers may not want to provide this information, but if you were a qualified buyer you may take comfort that the process being run will focus on your needs while you assess the business opportunity.
Prepare Confidential Information Memorandum (“CIM”), Detailed Sales Business Plan, Management Presentation The CIM is a document that is provided to interested purchasers who sign a CA/ NDA that provides detailed business, financial and operational information on the business to assist counter-parties in preparing a proposal.
This provides a presentation to buyers from the current operator; which allows for questions and answers for a potential buyer on information they deem necessary that may not be provided in the CIM.
Data Room A good data room will provide all the detailed information that is not fully covered in the CIM.  In some cases, data rooms are set up in stages that provide preliminary information and then more detailed information once a letter of intent or memorandum of understanding is put in place.
Marketing Approach A key consideration is how broad do you want to approach selling your business?  Do you want to target a specific select group of potential buyers or do you want to broadly market your business?  Here are three common approaches:

1. Targeted Process to a Limited Group

  • Potential buyers are identified and well understood and the message is highly tailored to each counter-party.
  • Generally, have a good understanding of why interested purchasers will have interest (for example have they approached you previously).
  • Your targeting provides ‘qualifying the potential buyer’ upfront.

2. Expanded Targeted Process

  • Potential buyers are identified but may be less understood.
  • Do not have as much detail on why they have an interest but logically they should care to know about the opportunity of buying your business.
  •  Your targeting provides ‘qualifying the potential buyer’ upfront.

3. Broad process

  • Want to cast a wide net to attract full interest of the market which may include listing your business on online listing sites.
  • Qualifying potential buyers is more engaged as you likely will be dealing with interested purchasers you do not know.

Step 2. Conducting the Process

Initial contact made to prospective purchasers Depending on the Marketing Approach, prospective purchasers are contacted using the Introduction Letter or Marketing Brochure for targeted processes.  For broad process the opportunity is sent across all marketing approaches; for example, direct contact, email lists, broker website and/ or public listing sites.
Qualify prospective Buyers Gather information that fits the outline prepared in Step 1. That then provides a guide to whether you want to enter into a CA/ NDA with a prospective purchaser.
Execute CA/ NDA Once a potential buyer is qualified then the CA/ NDA is executed.  Be prepared that the potential buyer (and their legal counsel) may have comments on your CA/ NDA or may want to execute there own form of CA/ NDA.
Provide Confidential Information Memorandum (“CIM”), Detailed Sales Business Plan, Management Presentation At this stage you are providing the key information to a prospective buyer, so they can assess the opportunity you are providing.
Follow-up Information Potential purchasers will likely have additional information requests that you can determine whether you are in a position to provide.

Step 3. Deal Negotiating/ Closing Stage

Preparation of Letter of Intent/ Memorandum of Understanding (“LOI”) At this point you are at a point where a potential buyer and yourself are looking to set forward to completing a transaction.  The document typically outlines the business terms, timeline to completing a transaction, financing conditions, and key outstanding due diligence items required (at this stage you may have not provided sensitive information such as employee contacts, material agreements, etc.).
Work to go from LOI to a definitive agreement At this point you are looking to complete outstanding items such as providing additional due diligence, outlining a transition plan, and organizing financing terms.
Definitive Agreement The definitive agreement typically becomes the formal agreement to formalizing the sale from business seller to business purchaser.

The following provides an outline on how involved selling a business can be and the value of advisers such as business brokers, legal counsel, accountants, tax advisers, and other professionals.


















Author: Rob Marriott