Selling a Business: FAQs
Common questions from owners evaluating a sale and preparing for a transaction.
Getting Started
What information do I need before we talk?
An initial conversation usually requires recent financial statements, a high-level understanding of revenue mix and customer concentration, ownership structure, and the owner’s objectives and timing. Perfect information is not required at the outset; part of the process is identifying gaps and prioritizing what needs to be prepared.
What drives valuation in most lower middle-market businesss?
Valuation is driven by a combination of sustainable cash flow (typically measured by EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization), growth prospects, customer concentration, management depth, and perceived risk.
Industry dynamics and buyer appetite also play a significant role. No single metric determines value in isolation. Since industry dynamics and buyer appetite play significant roles, it is important to find the best buyer, not the most convenient one.
Do I need a valuation of my business before starting?
No, most owners do not need to pay for a business valuation before they sell. Ultimately, buyers will set their own price based on their valuation criteria (think: cash flow, risk, growth opportunities, etc.), no matter what your report says.
What size of business does Stevenson & Company typically represent?
We typically advise companies with $1–5 million of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), most often founder-owned businesses preparing for a full or partial liquidity event. We will also represent companies outside this range when it makes strategic sense.
Process & Timing
How long does a typical sale process take?
A full sell-side process typically takes 6–9 months from preparation to closing. Timing depends on readiness, buyer interest, diligence complexity, and financing. Well-prepared companies tend to experience smoother and faster processes.
What are the main phases of a sale process?
The process generally includes preparation, marketing, buyer outreach, management meetings, letter of intent negotiation, diligence, and closing. Each phase builds on the prior one, and delays often occur when preparation is incomplete.
What happens after signing an LOI?
After signing an LOI, the buyer conducts confirmatory diligence while definitive agreements are negotiated. Although price and structure are outlined in the LOI, terms can still change based on diligence findings.
It is important to note the seller typically grants exclusivity to the buyer with an LOI, which decreases the owner’s negotiating leverage. Never rush to sign an LOI, especially an unsolicited LOI.
What does “quality of earnings” mean?
A quality of earnings report, usually prepared by a CPA firm, evaluates the sustainability and accuracy of reported earnings by identifying non-recurring items, owner-specific expenses, and accounting adjustments. Buyers use it to assess true cash flow and risk, and sellers benefit by addressing issues proactively rather than reactively during diligence.
Some, but not all, companies may benefit from preparing a Quality of Earnings report for buyers.
Confidentiality
When do buyers sign an NDA?
Buyers typically sign a non-disclosure agreement before receiving confidential information beyond a high-level overview. NDAs protect sensitive financial, operational, and customer data throughout the process.
How do you market a business confidentially?
Confidentiality is maintained through blind teasers, controlled buyer outreach, staged information release, and careful communication planning. Employee and customer awareness is usually deferred until very late in the process.
What is a CIM or CIP?
A Confidential Information Memorandum (CIM or CIP) is a detailed presentation of the business prepared for qualified buyers. It outlines financial performance, operations, markets, and growth opportunities while positioning the company accurately and credibly.
Diligence & Risk
What issues most often delay or kill deals?
Common issues include financial inconsistencies, unresolved legal or environmental matters, unclear working capital expectations, and misaligned expectations between buyer and seller. Many of these can be mitigated with proper preparation.
What diligence items are most underestimated by sellers?
Sellers often underestimate the depth of financial, customer, IT, and legal diligence. Buyers focus not only on historical results but also on sustainability, scalability, and risk exposure.
How does customer concentration affect outcomes?
High customer concentration can increase perceived risk and reduce valuation or deal certainty. Mitigating factors include long-term contracts, diversified end markets, and strong customer relationships.
What if my financial statements are not perfect?
High customer concentration can increase perceived risk and reduce valuation or deal certainty. Mitigating factors include long-term contracts, diversified end markets, and strong customer relationships.
Post-Close
How long do sellers usually stay involved after closing?
Post-close involvement depends on the buyer’s needs and the seller’s objectives. Some sellers exit quickly, while others remain in leadership or advisory roles for an agreed-upon period—or forever!
What does a typical transition period look like?
Transition periods vary but commonly range from several months to a year. Sellers may assist with customer introductions, knowledge transfer, or operational continuity depending on the transaction structure.