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Stages of Selling an American Business

Changing business ownership contains various stages and timeframes that depend on the type and location of the business. However, generally business professionals consider these to be the common stages for transferring ownership of a business.

Pre Hot Stage I (Contains Ground)

  • Seller and broker create agency relationship (1 to 3 days)
  • Broker receives and reviews the seller documents (1 to 3 days)
  • Approach professionals to evaluate the fair market value of the business (3 to 5 days)
  • Preparation of sales brochure, start advertising in the media

Hot Stage II (Marketing Work)

  • A. Phase I (Hot Wave)

    • Initial marketing: This crucial stage consists of 30 to 60 days. Most of the prospective buyers approach the broker, as this is new business in the market and if the presentation is good the seller will get an offer.
    • There are buyers and constant solicitation, but no offer indicates either the price is unrealistic, or low returns with high risk, or unprofessional presentations, or tight financing market conditions.

  • B. Phase II (Mixed Wave)

    This is a second phase of marketing work that consists of 60 to 180 days. The broker is getting calls, but there are no written offers.

    Reasons for not getting an offer at this stage:

    • Unprofessional presentation
    • High down payment
    • Unrealistic price
    • Low returns
    • Highly fluctuating profits
    • Moderate degree of risk and viability of business
    • Shorter leases
    • Zoning changes
    • Tight financing market

  • C. Phase III (Cold Wave)

    This is a third phase of marketing work that consists of 180 to 360 days. The brokers call frequency from buyers reduces significantly and decreases a buyer’s motivation toward this business that has dropped significantly.

    Reasons for not getting offers at this stage:

    • Improperly evaluated leading to unrealistic price
    • Longer time on the market
    • Unprofessional presentations
    • Less marketing
    • No proper follow up with prospective buyers
    • Non-cooperation among the brokers
    • Unavailability of documents for verification and due diligence
    • Short lease
    • Title issues
    • High degree of risk
    • Poor location
    • Uncooperative sellers
    • Negative cash flow
    • Declining market
    • Differences in the stated statements and verified documents
    • Zoning changes

Post Hot Stage III

This is third and final stage of marketing which consists of 1 to 2 years or even more. There are no calls to the broker.

Reasons for not getting offers at this stage:

  • No proper marketing
  • Improperly evaluated business value or unrealistic price.
  • Longer time on the market
  • Unprofessional presentations
  • License and permit restrictions
  • No proper follow up with prospective buyers
  • Non-cooperation among the brokers
  • Unavailability of documents for verification and due diligence
  • Short lease
  • Title issues
  • High degree of risk
  • Poor location
  • Uncooperative sellers
  • Negative cash flow
  • Declining market
  • Differences in the stated statements and verified documents
  • Zoning changes
  • No or unavailability of documents
  • As is sales
  • No good faith work
  • All cash offers
  • No lease
  • Poor condition of property

Offer Stage

Irrespective of the above stages, the post offer stage will apply if the seller receives an offer. The broker will display the business on the market as a sale pending or in contract, hence most buyers do not call the broker regarding this business.

In this stage, the seller receives an offer accepted and approved by the buyer. The seller verifies with his agent and reviews the buyer financials and pre-qualifications. The buyer satisfactorily completes due diligence and is satisfied with records. Typically, this part lasts anywhere from 7 to 15 days. Then all concerned parties will agree to open an escrow to fulfill the functions of a fully executed contract. The close of escrow will vary anywhere between 25 days to 6 months depending upon the nature and type of the business. This includes the permits, franchise approvals, lender approvals, etc. At the time of the close of escrow all parties will review the final documents, read and approve, and with consent of all the escrow company will close escrow successfully.

If you want to know more about the stages of selling a business or transferring ownership of a business, or have further question about the stages of selling a business, please contact us at help@bizworldusa.com or 510-556-1600 and one of our approved business consultants will contact you.