How to Sell a Business: Steps and Timeline for an SME

How to sell a business: a two-stage operation

Knowing how to sell a business is not just a matter of finding a buyer and signing. The sale of an SME happens in two stages: a preparation phase, which ideally starts one to two years before the business goes on the market, then a sale process that usually lasts six to twelve months. Skipping the first stage is expensive: during their checks the buyer finds issues that could have been fixed, and makes you pay for them.

The table below gives the order of the steps and an indicative duration for an SME. Every deal is different: a company with clean accounts and a self-sufficient team will move faster, while one that depends on its owner or on a large customer will move more slowly.

Step	What happens	Indicative duration
1. Preparation	Accounts, organisation, dependencies to reduce	12 to 24 months beforehand
2. Valuation	A realistic price range	2 to 4 weeks
3. Choosing an adviser	Sale mandate	2 to 4 weeks
4. Marketing documents	Anonymous teaser and information memorandum	1 to 2 months
5. Finding buyers	Approach, confidentiality agreements	2 to 4 months
6. Offers and letter of intent	Price, conditions, exclusivity	1 to 2 months
7. Due diligence	The buyer's checks	1 to 3 months
8. Sale agreement	Final price, warranties	1 to 2 months, partly during due diligence
9. Signing and handover	Payment, handing over the reins	Day one, then 3 to 12 months of support

Step 1: prepare the company before putting it up for sale

A buyer pays for future earnings. Anything that makes those earnings more certain raises the price; anything that makes them uncertain lowers it or turns into a warranty you have to give. Preparation means dealing with these points while there is still time:

• Readable accounts. Separate personal expenses from company costs and clear up old situations (director's loan accounts, disputes, overvalued stock).
• A team that works without you. If you alone hold the relationship with key customers, hand it to a sales manager now.
• Less dependence on large customers. A customer worth more than a quarter of revenue worries every buyer.
• Contracts in order. Leases, customer and supplier contracts, ownership of trademarks and software: the buyer will read everything.
• An adjusted EBITDA. EBITDA is operating profit before depreciation and amortisation. You correct it for items that will not recur after the sale: an owner's salary far from the market rate, an exceptional cost, rent paid to the owner's property company at an off-market price.

Step 2: estimate the value before choosing a buyer

Going into a negotiation without a price range means letting the buyer set it. The estimate rests on the same methods the buyer will use: EBITDA multiple, discounted cash flow (DCF) and, for asset-rich companies, adjusted net asset value. Our guide to the 4 methods to value a business covers them in detail, and the article on the EBITDA multiple for your sector shows how to choose the right figure.

Take Ateliers Durand, a fictitious industrial SME: €8.2m of revenue, €1.1m of EBITDA, €0.6m of net debt and a multiple of 5.9. Enterprise value comes to €6.5m (1.1 × 5.9) and equity value, what goes to the shareholders, to €5.9m (6.5 − 0.6), within a range of €4.8m to €7.1m. That range, not a single figure, is your reference throughout the negotiation.

Steps 3 and 4: choose an adviser and prepare the documents

Most SME sales go through an adviser: a sale advisory firm, an investment bank specialising in small and mid-sized deals, or an accountant who handles business transfers. The adviser looks for buyers, runs the competitive process and keeps to the timetable. Their fee generally combines an upfront retainer and a success fee proportional to the price; compare several proposals and read the length of exclusivity in the mandate.

The adviser then prepares two documents:

• the anonymous teaser: one or two pages describing the business, its size and its region, without naming the company;
• the information memorandum: a full document (history, market, customers, team, accounts over three to five years, forecasts), given only to buyers who have signed a confidentiality agreement.

Step 5: find the right buyers

The buyers of an SME fall into four families, who do not pay for the same reasons:

Buyer	What they are looking for	What it means for you
Industry player	Customers, know-how, market share	May pay more if they expect savings; fast integration
Investment fund	A return over 4 to 7 years	Finances part of the price with debt; often asks you to stay or reinvest
Individual buyer	A management role	Budget limited by their own contribution and borrowing capacity
Employees or family	Continuity	Price often more moderate, payment sometimes spread over time

A process that sets several buyers against each other generally achieves a better price than a discussion with a single candidate, however serious.

Step 6: compare offers and sign a letter of intent

Interested buyers first submit an indicative offer, then the chosen buyer signs a letter of intent. It sets the price (or the method for calculating it), its structure, the timetable and the conditions (financing, bank approval), and grants the buyer exclusivity for a few weeks to a few months. From then on you cannot talk to other candidates: this is the point where your bargaining power drops the most.

Compare offers on what you will actually receive, not on the headline figure. Example for Ateliers Durand, with an equity value of €5.9m:

Price component	Amount	When and on what condition
Cash payment	€5.0m	On the day of final signing
Earn-out	€0.6m	Over two years, if EBITDA reaches at least €1.2m
Vendor loan	€0.3m	Repaid by the buyer over three years
Total	€5.9m	Of which €0.9m uncertain or deferred

An offer of €5.7m paid entirely in cash may be worth more than this one, depending on how far you trust future results and the buyer's strength.

Steps 7 and 8: the buyer's due diligence and the sale agreement

During due diligence, the buyer's advisers check the accounts, contracts, tax and employment position, disputes and the environment. Anything they find that you had not disclosed becomes an argument for lowering the price. That is why the preparation in step 1 matters, along with a complete data room (the documents put online for the buyer) from the start.

The sale and purchase agreement then sets the final price and the commitments of both parties. Three clauses deserve a careful read with your lawyer:

• the price adjustment: the price is often calculated on the net debt and working capital recorded on the day of the sale. If the net debt of Ateliers Durand rises from €0.6m to €0.7m by then, the price falls by €0.1m;
• the warranty on assets and liabilities: you compensate the buyer if a liability arising before the sale appears afterwards (a tax reassessment, an employment tribunal claim). Negotiate a cap, a duration and a deductible;
• the non-compete and handover support: how long you stay on to hand over, and the area where you agree not to compete with the company.

Step 9: sign, receive payment and hand over

The signing of the agreement and the transfer of the shares take place on the same day or a few weeks apart, while conditions (the buyer's financing, authorisations) are lifted. The handover follows: introductions to customers and teams, training of the new manager.

What you receive after tax depends on how you sell

The sale price is not what you pocket: the tax on the capital gain depends on how you sell and on your situation. The following do not give the same net amount: selling your shares directly, selling when you retire (with the €500,000 allowance that French law provides in that case), or first contributing your shares to a holding company before the sale (the French apport-cession scheme).

The Sell my company tool, free on screen with a free account, compares the net after tax of these three ways of selling. It is an indicative simulation, not tax advice: have your situation validated by your accountant or a tax lawyer. The tool also offers a free introduction to a partner sale advisory firm.

The mistakes that lower the price

• Putting the business up for sale without preparation, following a health problem or simple weariness: the buyer senses it and negotiates accordingly.
• Quoting a price without a reasoned range, or a price based on a widely reported deal that has nothing to do with your size.
• Granting exclusivity too early, before comparing several offers.
• Letting the business slow down during the sale. A weak quarter during due diligence is paid for in the price, or in the earn-out.
• Discovering the tax position at the end, when the way of selling can no longer be changed.