Selling Your Business: What Actually Happens and How Long It Takes
If you’re thinking about selling your business, you probably have questions: How long will it take? What will it cost? What’s the legal process? What can go wrong?
I’ve worked on dozens of business sales – from $500K deals to $25M+ transactions. The timeline and legal process vary significantly based on deal size, buyer type, and how well-prepared you are. But there are clear stages every business sale goes through.
Phase 1: Pre-Sale Preparation (3-6 months before listing)
Step 1: Get Your Financial House in Order
Buyers will scrutinize your financials. Before you list or start conversations with potential buyers, ensure:
- Last 3 years of audited or reviewed financial statements
- Current year-to-date financials (monthly)
- Tax returns match financial statements (discrepancies are red flags)
- All related-party transactions are documented and at market rates
- Revenue recognition is conservative and consistent with GAAP
This is your foundation. If there are gaps or inconsistencies, fix them before the sale process. It’s much cheaper to clean this up proactively than to fight with buyers during due diligence.
Step 2: Clean Up Your Legal Structure
Buyers will review your corporate documents and cap table. Fix issues now:
- Is the cap table clean and accurate? (All shares documented, no disputed ownership)
- Are all shareholder agreements in place and up to date?
- Are all IP assignments documented? (Does the company own the IP, or do founders/employees?)
- Are there any outstanding employee option plans or deferred compensation obligations?
- Are all related-party loans documented?
- Are there any liens, judgments, or claims against the company?
This cleanup is critical. A messy cap table can kill a deal or reduce your price significantly.
Step 3: Audit Your Contracts
Major customers, vendors, and partners – do their contracts have change-of-control clauses that might be triggered by the sale? Examples:
- Customer contracts that terminate if ownership changes
- Vendor agreements with exclusivity or termination rights
- Partnerships that require consent to assignment
- Technology licenses with change-of-control restrictions
If major contracts could be lost in a sale, your business value drops significantly. Address these proactively – renegotiate, get consents, or prepare the buyer for the risk.
Step 4: Identify and Address Known Issues
Pending litigation, regulatory complaints, employment disputes – document them and determine if they’re material. Buyers will find them anyway; better to disclose proactively.
Step 5: Engage Your Team
You’ll need:
- Investment banker or M&A broker: Identifies buyers, manages sales process, negotiates terms
- Tax adviser: Structure the deal for optimal tax treatment
- Lawyer (or fractional GC) with M&A experience: Handles legal documentation, due diligence coordination, closing
- Accountant/bookkeeper: Prepares financial records and responses to buyer inquiries
Total cost for professional advisers: typically 2-8% of sale price (higher percentage for smaller deals, lower for larger ones).
Phase 2: The Sale Process Begins (Months 1-2 of active selling)
Step 6: Create a Teaser and Confidentiality Agreement
If you’re not going to a broker with a list of buyers, you’ll start approaching potential buyers. Before you share any real information, they sign an NDA (non-disclosure agreement).
The teaser is a brief summary of the business – revenue, EBITDA, business model, industry – enough to generate interest without disclosing sensitive information.
Step 7: Prepare an Information Memorandum
This is the sales document – 20-40 pages describing the business, market, financials, growth strategy, and why it’s a great investment. It includes:
- Business overview and history
- Market size and growth opportunity
- Competitive positioning
- Customer breakdown and retention data
- Financial performance (last 3-5 years)
- Management team
- Growth strategy and opportunities
- Key risks and mitigation
This is a sales document, not a legal document. It’s optimistic but needs to be truthful – misrepresentations can come back in post-closing disputes.
Step 8: Identify and Approach Potential Buyers
Typical buyers are:
- Strategic buyers: Competitors or companies in adjacent industries looking to acquire your customer base or technology
- Private equity buyers: PE firms buying with a plan to grow and resell (usually require $5M+ EBITDA)
- Individual buyers: Entrepreneurs looking to acquire a business to run
- Management buyers: Your current management team buying you out (often with investor backing)
This phase typically lasts 4-8 weeks. You’ll send the information memo to 10-30 potential buyers. Expect 20-30% to express interest. Of those, maybe 30-50% will move to the next phase.
Phase 3: Initial Buyer Engagement (Weeks 4-8)
Step 9: Conduct Preliminary Meetings
Interested buyers will want to meet with you and your team to understand the business. You’ll discuss:
- Business model and competitive advantages
- Customer dynamics and retention risk
- Growth strategy and opportunities
- Operations and team capabilities
- Financial performance and margins
These are exploratory. You’re learning about the buyer, and they’re learning about the business. This phase usually takes 2-4 weeks.
Step 10: Non-Binding Indication of Interest (IOI)
Serious buyers typically submit a non-binding indication of interest – a letter stating they’re interested and at what price and terms. This isn’t binding, but it tells you where they’re willing to start negotiating.
IOIs typically include:
- Proposed purchase price (or price range)
- Proposed deal structure (cash, earn-out, seller financing)
- Key conditions (financing, due diligence, consents)
- Timeline to closing
You’ll typically get 3-10 IOIs. From those, you’ll select the most attractive 2-3 to move forward with (highest price, most likely to close, best terms).
Phase 4: Exclusive Negotiation (Weeks 8-12)
Step 11: Grant Exclusivity and Begin Due Diligence
You select one buyer (sometimes two if you’re hedging) and grant exclusivity – the buyer has 60-90 days to complete due diligence and make a final offer. During this period, you don’t shop to other buyers.
The buyer now conducts extensive due diligence:
- Financial audit (revenue, profitability, working capital)
- Legal review (contracts, compliance, litigation, IP ownership)
- Customer diligence (will customers stay? What’s the churn rate?)
- Operational assessment (can we integrate this business successfully?)
- Tax structuring (optimal structure for the buyer)
You’ll be providing hundreds of documents and answering hundreds of questions. Plan for heavy workload during this phase. This typically takes 30-60 days.
Step 12: Negotiate Final Terms and Letter of Intent
Based on due diligence findings, the buyer will refine their offer. You’ll negotiate:
- Final purchase price: Adjustments based on due diligence findings
- Deal structure: Cash, earn-out, seller financing, combination
- Representations and warranties: What you’re representing is true about the business
- Indemnification: If reps turn out to be false, how much do you have to reimburse the buyer?
- Non-compete and non-solicitation: Restrictions on your ability to compete or hire employees
- Earn-out targets: If part of the price is contingent on performance
- Closing date and conditions: When will the deal close? What needs to happen before then?
This negotiation typically takes 2-4 weeks. Once terms are agreed, you sign a Letter of Intent (LOI) – a binding or semi-binding document committing to the deal subject to final documentation.
Phase 5: Final Documentation and Closing (Weeks 12-16)
Step 13: Draft and Negotiate Purchase Agreement
Your lawyer drafts the purchase agreement – the final, binding legal document. This is typically 40-100+ pages and includes:
- Asset or share purchase mechanics (which assets, at what price)
- Representations and warranties from you (seller) and the buyer
- Indemnification (what happens if something you promised isn’t true)
- Conditions to closing
- Closing mechanics
- Non-compete and confidentiality
- Post-closing obligations (transition help, training)
- Many, many schedules and attachments
Negotiation of the purchase agreement typically takes 3-6 weeks. This is where a lot of business terms get negotiated at the legal level.
Step 14: Secure Third-Party Consents
If material customers, vendors, or partners need to consent to the change of ownership, you get those now. Examples:
- Customer contracts with change-of-control consent requirements
- Landlord consent (if leasing real estate)
- Regulatory approvals (if required in your industry)
- Lender consent (if the buyer is taking on debt)
Getting consents can be time-consuming. If key customers might not consent, this can be a deal-killer. Address this early.
Step 15: Arrange Financing and Final Conditions
The buyer finalizes financing (if any). They need to provide proof of funds to close the deal. Your lawyer will verify that all closing conditions are satisfied:
- Due diligence is complete
- Financing is secured
- Third-party consents are obtained
- Representations are still accurate
- No material adverse change has occurred
Step 16: Closing
The day arrives. Everyone signs. Documents are exchanged. Funds transfer. Keys are handed over.
Closing typically happens at your lawyer’s office or via electronic signatures and wire transfers if the parties are in different locations. The whole process takes a day or two of coordination.
Step 17: Post-Closing Transition
The deal is done, but your obligations don’t stop. Typically, you’ll:
- Provide transition support (usually 30-90 days) – you help the buyer understand the business, customers, operations
- Train the buyer’s team on key processes
- Introduce the buyer to key customers and partners
- Address post-closing questions and claims (within indemnification periods)
Total Timeline: From Decision to Close
- Pre-sale preparation: 3-6 months
- Information memorandum and buyer identification: 4-8 weeks
- Preliminary meetings and IOIs: 4-8 weeks
- Exclusive negotiation and due diligence: 6-12 weeks
- Final documentation and closing: 6-10 weeks
Total: 6-12 months from decision to close (can be faster with efficiency, slower with complications)
Common Complications and Delays
Due diligence findings that reduce value. Buyer discovers something in due diligence that wasn’t disclosed or is worse than expected. Price negotiation restarts. Plan for 2-4 weeks of renegotiation.
Customer loss or at-risk contracts. A major customer indicates they might not stay post-acquisition. Deal value drops significantly. This can delay or kill a deal.
Financing delays. The buyer’s lender or investor moves slower than expected. Closing gets delayed. Plan for potential 4-8 week delays.
Third-party consent issues. A landlord or major customer won’t consent to the change of control. You may need to renegotiate or carve out specific contracts.
Regulatory or legal issues emerging. You discover during final due diligence that there’s a compliance issue, pending lawsuit, or environmental concern. This triggers renegotiation and delays.
The Cost of Selling
- Investment banker/M&A broker: 3-5% of purchase price (paid at closing)
- Legal fees: $20,000-$100,000+ (depending on complexity and deal size)
- Accounting/tax: $10,000-$50,000+ (financial verification and tax planning)
- Other advisers (technical audit, environmental, etc.): $5,000-$50,000+
- Total: 5-10% of purchase price in professional costs
Tax Implications
How you structure the deal has huge tax consequences:
- Share sale: Usually taxed as capital gain (50% inclusion rate in Canada = favorable)
- Asset sale: Individual assets have different tax treatments (goodwill can be capital gain, but equipment recapture is ordinary income)
- Earn-out and seller financing: Deferred payments may have different tax treatment than cash-at-close
Work with a tax adviser to structure the deal optimally for you. Sometimes changing the deal structure by a few percentage points saves you more in taxes than the absolute price.
FAQ: Selling Your Business
Q: Should I hire a broker or sell directly?
A: Brokers take a commission (3-5%) but they have buyer lists, manage the process, and often get you a higher price. For most deals over $1M, brokers pay for themselves.
Q: Can I sell while still running the business?
A: Yes, but it’s demanding. Due diligence happens during working hours. Buyer meetings happen during working hours. You need to maintain confidentiality (employees don’t know you’re selling). Most sellers take 20-30 hours/week on the sale process during the exclusive negotiation phase.
Q: What if the buyer backs out?
A: It depends on the stage. If you’re in LOI and due diligence, the buyer has outs if they find deal-breakers. If you’ve signed a purchase agreement and the buyer backs out without cause, you can sue for specific performance (force them to close) or damages. But litigation is expensive and slow.
Q: What’s a reasonable earn-out?
A: 10-30% of the purchase price over 1-3 years, tied to specific metrics (revenue, EBITDA, customer retention). More than that becomes risky for the seller.
Q: How much should I stay involved post-close?
A: Typically 30-90 days as an adviser or in a transition role. After that, it’s the buyer’s business. Non-competes usually run 1-3 years, restricting where you can work.
The Bottom Line: Be Prepared and Patient
Selling a business takes 6-12 months. It’s demanding. But if you’re well-prepared, you’ll get a better price, close faster, and avoid surprises.
Thinking about selling your business? Let’s discuss your situation. Learn about our M&A advisory services, or reach out to discuss your exit strategy. I can guide you through the entire process from preparation to closing.