If it’s your first time selling a business, it can be difficult to know where to start.

After all, you’ve just spent years building your company, learning everything you needed to know to succeed in your particular industry. Selling a business is a completely separate challenge, one with its own learning curve.

There’s a lot to learn if you want to find a buyer and get the payout you deserve when you sell your company. Getting acquired is a fairly complex process, depending on the size and type of your business, that usually takes months.

How to sell a business: Your step-by-step guide

To fill the information gap for entrepreneurs, we’ve created a step-by-step guide to selling a startup. This overview of the process should help you know what to expect.

The process of selling a company has five basic phases:

1. Presale preparation
2. Marketing your business
3. Evaluating sale offers and due diligence
4. Closing the deal
5. Post-sale support

Let’s review each of these steps in detail.

1. Presale preparation for selling a business

If you want to get the best value for your business, start planning early, said Cortney Sells, president of business brokerage The Firm Advisors, in Omaha, Nebraska. Understand that it may take a year or two to get your business into shape to sell it at the best price.

“If you want to sell your business and retire at age 65, don’t call us when you’re 65 — call when you’re 62,” said Sells.

Some experts even recommend thinking about who you would sell your company to before you launch it, tailoring your business idea with an exit in mind. It’s really never too soon.

Even if your business is shipshape and ready to sell today, it’s important to realize the sale process will take time. It can be more challenging to find a buyer when you’re selling a startup, since you have a shorter track record of success than a long-established business would.

Startup sale preparation begins with finding out how much your small business might be worth to a buyer.

Value your business

What is your business worth right now? A valuation expert or business broker can help you understand what buyers would likely pay for it and why, as well as what could be done to improve your startup’s valuation. You need to decide if now is the best time to sell, or if you should wait.

“Have you built it as big as possible?” asked Bill Barlow, an M&A-focused attorney at Barlow & Williams in Durham, North Carolina. “Timing is everything. If you see a clear path to grow 20 %to 30% in the next year, you could stay on board and then show that upward trajectory.”

Of course, some buyers simply need to get out now — maybe you’re completely burned out on running your startup or want to transition to retirement. But if you can time your exit to when your company is most valuable, you’re more likely to get a bigger payday.

Valuation is usually based on a multiple of revenue or annual net income. That multiple will vary by business type and industry, noted Barlow. Many sellers have fantasies about how much their business could sell for, but don’t move forward without a real-world valuation estimate.

Brokerage president Sells compared getting a business valuation to creating a road map for how to achieve the sale you want. If your current valuation is too low to meet your needs, look for ways to grow top-line revenue, reduce expenses, or both. For example, “You may need to cut staff to show more profit,” noted Sells.

While you’re working on optimizing profit to give your business the best possible valuation, you should also complete one other preparatory task.

Assemble your paperwork

It’s time to document how your startup operates. Buyers will want to see hard evidence that your profits are real, so you’ll want to have your documentation ready to hand over to any interested parties before you start marketing the business.

Typical documents buyers want to see include:

• An operating manual describing how the business makes money
• 1-2 years’ worth of monthly profit and loss statements
• Job descriptions and contracts for current personnel
• Lists of major customers and vendors
• Descriptions of any intellectual property or unique team knowledge
• Information on your current tasks in the business, including how many hours you work

Once you’ve driven valuation as high as you can and your documentation is done, you’re ready to put your business up for sale.

2. Marketing your business for sale

You’re locked and loaded, and it’s time to sell your business. Which raises the question: Who would be your most likely buyer?

Different kinds of buyers look to acquire startups for various reasons. Types of buyers include:

• Competitors and vendors: A player in your industry may see value in your web traffic, customer list, or other relationships. Also known as strategic buyers.
• Private equity: These buyers usually look for companies that complement other businesses they own, or underperforming companies they can add value to, repackage, and sell for a quick profit. Also known as financial buyers.
• Investor buyout: An existing investor in the business might acquire your remaining stake and become the full owner.
• Employee stock ownership plan (ESOP): It’s complex to set up, but some founders sell their startup to their key employees, as happened with gourmet-food brand Bob’s Red Mill in 2010.

Now that you know the buyer types, you can decide who to target — and how to reach out.

Startup founders typically find a buyer in four basic ways:

1. You’re approached. People notice what you’re doing and offer to buy your startup. Vet unsolicited offers carefully — these buyers are often lowballers. And if you only have one unsolicited offer, you might want to drum up other opportunities to drive up the price through a bidding war.
2. DIY it. If you know the players in your industry, or have existing partnerships with possible acquirers, you may be able to find a buyer yourself. Some sellers even find success with a cold-pitch approach. The catch: This will take precious time away from operating the business.
3. Use online buy-sell platforms. Many marketplaces such as bizbuysell.com now serve as intermediaries to connect sellers with potential buyers. They charge a fee, but can give you exposure to buyers you might never meet otherwise. Attorney Barlow noted that buyers on these platforms are usually financial buyers, and offers may be lower than offers from strategic buyers.
4. Hire a business broker. A good broker will tap their network of potential buyers to help you drum up many candidates and will represent your interests when negotiating a startup sale deal. On the downside, broker fees are usually substantial. However, a broker may find multiple buyers and help you get into a bidding-war scenario that drives your price up.

Most commonly, buyers in a business sale are competitors or partners within the same industry who’re already aware of your startup, said Joe Procopio. Based in Durham, North Carolina, the serial entrepreneur mentors founders through Teaching Startup and has sold multiple startups, including a networking and sale platform for startup founders, ExitEvent.

“I wish I’d known how long it takes to build the relationships required to get your company in a position to be acquired,” Procopio said. “It can take years. It’s a very smart idea to get close to potential acquirers early on in your startup’s lifecycle.”

Through building those relationships, Procopio was able to find his own buyer. He identified and then actively cultivated a relationship with the company that was his top pick to acquire his startup. ExitEvent sold to American Underground in 2014 for an undisclosed sum.

If you don’t find a buyer right away, your marketing may need a little boost.

Create marketing materials

Unless your startup sale comes together like magic, you’ll need some marketing materials to promote your business. No matter what marketing method you choose, you’ll want a slide deck, video, and/or spec sheet that dazzles potential buyers with your startup’s strengths, track record, key points of difference, and growth potential.

Once your marketing materials are ready, the marketing begins. If you’re DIY-ing it, you’ll network like mad, either online or in person, to spread the word that your startup is for sale.

With any luck, your marketing efforts will pay off with expressions of interest from possible buyers.

3. Evaluating sale offers and due diligence: The toughest part of how to sell a business

Hopefully, you now have a sale offer or two to review from prospective buyers. These usually take the form of a Letter of Intent (LOI).

If you agree to a potential buyer’s terms and sign an LOI, that buyer gets an exclusivity period in which to review your business. During this time, your marketing activity must stop.

The premise is that this buyer will move forward with the purchase if your documentation and details check out. You’ll want to have a qualified M&A-focused attorney review the LOI, Barlow said, because the final sale terms are defined in that first document.

Startup sales can be structured in a few different ways:

• All cash: You get paid the full value at closing. Boom, done.
• Some cash up-front + an earn out: Performance-based additional payments arrive in the months following the sale if you meet defined targets.
• Some cash + earn out + service contract: In addition to the deal terms and performance-based earn out payments, you agree to work for the new owner for specific fees during a defined timeframe (see the final section for more details.)
• Some cash + required employment contracts for you and/or team members: Sometimes known as an acquihire, this setup allows the buyer to acquire the knowledge and abilities of you and/or your team.
• Stock grant: You get shares in the acquiring company. Shares can be part of any of the offers described above, too; it could be cash and stock, for instance.

If you agree on a deal structure and sign the LOI, you’ll move on to the next phase of the sale process, whereby the buyer goes over all your financials with a fine-toothed comb.

Crunch the numbers

Mergers-and-acquisitions pros call this phase “due diligence.” It’s time for buyers to put your finances under a microscope, to make sure your figures are honest. Buyers will have many questions and make more data requests, seeking to know all they can before they take the plunge.

Due diligence is often a time-consuming process and a stressful time for sellers. “By the end, you may feel they want your firstborn and a blood test,” joked Sells.

Many buyers seek Small Business Administration (SBA) loans or other financing, or may even use their family home as collateral for their business purchase, noted Sells. They may be considering spending their life savings to acquire your startup, and they’ll want to make sure they’re making a sound decision. That’s why buyers are typically so aggressive in probing for information before they commit — but remember, you don’t have to share anything. That’s your decision to make.

If you reach a standoff on whether sensitive information transfers before money is deposited or vice versa, the answer may be to set up a secure, virtual “data room.”. You can place your monthly P&L statements and other private information in the room for viewing. If the buyer walks away, they won’t be able to keep any of the info you shared in the data room.

4. Closing the deal: The best part of selling a business

If due diligence goes well and your buyers want to move forward, you’ll negotiate an asset-purchase or sale agreement. You then enter a tricky period, noted Procopio. You haven’t quite sold yet, but the buyer may want to see highly confidential info, such as lists of top customers or information about your intellectual property.

Resist as long as you can. If the deal falls apart, you don’t want a competitor walking away with key information they could use to undercut your company and steal customers.

“I’ve had requests from acquirers wanting unfettered access to servers and source code,” said entrepreneur Procopio. “That’s just not going to fly unless we’re on the verge of closing — and even then, access can’t be ‘unfettered.’”

One sensitive area revolves around contracts for anyone who has written code for your product, said attorney Barlow. He says if you’ve had a handshake deal with your coder and no written agreement, then the coder — not your business — ​​owns that code. It’s one area buyers scrutinize closely to make sure the seller truly owns the assets they claim and that’s spelled out with legal agreements.

Assuming all goes well, you’ll conclude due diligence and sign your sale agreement. Congrats! You’ve sold your startup.

You might think that’s the end of the sale process. But there’s usually a bit more work to do.

5. Post-sale support: What happens after you sell your company

Usually, the sale document outlines some actions required of sellers after their sale closes — so be sure to carefully consider them before signing your deal.

At the very least, owners are often required to spend a month or two assisting with the transition to new ownership. On the other end of the spectrum, your sale deal could require you to put in years of additional work.

Weigh the pros and cons of companies that might offer less cash but a quicker exit for you. Broker Sells points out that working post-sale for the new owner can be agony — the new owner could have completely different ideas for how to move forward.

“You might get an offer that’s $100,000 less, but they only need six months of training, versus one that’s more money but they want you for three years,” said Sells. “If you’re 65, you have to ask yourself if that extra $100,000 is really worth it. Make sure it’s the right fit if they want you long-term, or wait for another offer.”

How to sell your business: You’ve got this

As you can see, every startup sale has a distinct set of steps: preparation, marketing, reviewing and selecting an offer, closing, and post-sale responsibilities. Take it one step at a time, and you can position your startup to get the best price at sale.

Even if you think your company wouldn’t have value to anyone else, it’s worth exploring whether you might find a buyer. Sells recalled her very first brokering deal, which happened after a longtime client for her digital marketing agency told her he was closing his aging fitness gym to retire at age 70.

Not wanting to lose a marketing account, Sells reached out and found a couple of young trainers looking to own a gym location where they could host clients.

“Thirty days later, these young guys owned their own gym,” Sells explained, “and the owner got several hundred thousand dollars for his blood, sweat, and tears.”