Sales Process: The Structured Procedure of a Business Sale

The Business Sale Process: Structured Procedure and Common Challenges

Selling a business is a complex and time-consuming process that requires thorough planning, clear communication, and a strategic approach. In addition to financial and legal considerations, emotional and organizational aspects must also be taken into account to successfully complete the sale. A structured approach helps minimize potential risks and achieve the best possible sale price.

This article highlights the key phases of a business sale, the importance of legal advice and contracts, as well as the most common issues that can arise during the process.

Sales Phases: Step-by-Step to a Successful Closing

The business sale process can be roughly divided into four phases: preparation, buyer outreach, negotiation, and contract closing. Each phase has its own challenges and requires specific measures to advance the process.

Preparation: The Foundation for a Successful Sale

Preparation is one of the most important phases of the sales process, as it sets the course for later success.

Creating a Sales Memorandum: A sales memorandum (Information Memorandum) summarizes the key data and facts about the company, including financial figures, market position, growth opportunities, and risks. This document serves as the initial decision-making basis for potential buyers and should be professionally and precisely prepared.
Streamlining Corporate Structures: Before the sale, corporate structures should be cleaned up to eliminate potential legacy issues or risks. This includes clarifying outstanding receivables, dissolving unnecessary subsidiaries, or resolving shareholder conflicts.

Buyer Outreach: Using Discreet Contacts and Platforms

Approaching potential buyers is a sensitive step that should be handled carefully to maintain confidentiality and protect the company’s reputation.

Discreet Outreach via Networks or M&A Advisors: Experienced M&A advisors or networks can identify and discreetly approach potential buyers. This reduces the risk that the planned sale becomes prematurely known, which could cause uncertainty among customers or employees.
Online Platforms for Business Sales: Alternatively, digital marketplaces offer the possibility to list companies anonymously and filter interested parties. This option is particularly suitable for smaller businesses or industries with high demand.

Negotiations: Securing the Optimal Price and Terms

Once potential buyers are identified, negotiations begin. This phase determines not only the final purchase price but also the other terms of the sale.

Tactics for Price Negotiations: Buyers and sellers often have different price expectations. A realistic business valuation and a well-founded negotiation strategy are crucial to achieving the best possible price without deterring potential buyers.
Negotiation Strategies for Earn-Out Agreements: In earn-out models, where part of the purchase price depends on the company’s future performance, clear and measurable targets should be defined to avoid later disputes.

Contract Closing: Signing and Closing

The final phase of the sales process is the contract closing, which usually consists of two steps:

Signing the Purchase Agreement (Signing): At signing, the purchase agreement is signed by both parties. This contract contains all essential agreements, including the purchase price, warranties, and any conditions that must be fulfilled before closing.
Execution (Closing) After Fulfillment of All Conditions: After signing, certain conditions must be met, such as payment of the purchase price, regulatory approvals, or the handover of documents. Only then does the closing take place, officially transferring ownership rights.

Legal Advice and Contracts: Legal Safeguarding of the Sale

Legal advice plays a central role in business sales, as it helps minimize legal risks and prevent disputes. The purchase agreement is the centerpiece of the sales process and must be carefully drafted.

Choosing a Lawyer and Specializations: An experienced attorney specializing in business acquisitions (M&A) is indispensable. They review contract drafts, clarify legal questions, and represent the seller’s interests.
Drafting the Purchase Agreement: Besides the purchase price, the agreement covers warranties, liability exclusions, and protective clauses. Warranties may relate to the accuracy of financial data or ownership of assets. Liability clauses limit the seller’s risk if problems arise later.
Non-Compete Clauses and Protective Provisions: To protect the company from competition by the seller, many contracts include non-compete clauses. These prevent the seller from founding a similar business or poaching customers after the sale.

Time Management: How Long Does a Business Sale Take?

A business sale is a time-intensive process that typically takes six to twelve months. The duration depends on the size of the company, market attractiveness, and complexity of negotiations.

Typical Duration: Smaller businesses can often be sold more quickly, as due diligence and contract drafting are less complex. Larger companies with complex structures require more time to review financial data, legal documents, and other aspects.
Allowing for Buffers: Delays are common in business acquisitions. Buyers may need more time for financing, or unexpected issues may arise during due diligence. Sellers should therefore plan time buffers to remain flexible in responding to challenges.

Common Problems in the Sales Process: Identifying and Avoiding Pitfalls

Even with the best planning, problems can occur during the sales process. Some of the most frequent challenges include:

Buyer Withdraws Due to Financing Difficulties: Especially with smaller buyers, financing may fail to materialize. In such cases, it helps to check the buyer’s creditworthiness in advance or identify alternative buyers.
Discrepancies in Balance Sheet Items: If inconsistencies or uncertainties arise during due diligence, buyer confidence can be shaken. Careful preparation of financial data is therefore essential.
Conflicts Among Shareholders: When multiple shareholders are involved, differing interests can lead to conflicts. Early coordination and clear agreements are crucial here.

A well-structured sales process minimizes risks and lays the foundation for a successful transaction. Sellers who engage early with the individual phases, legal aspects, and potential problems are better prepared and can manage the sales process more effectively.

Sales Process