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Be Prepared to Sell Your Business – Have Your Documents Ready

documents to sell business kansas city

When studying for a college exam, attending study groups, making classroom notes, and preparing for a speech, you have to do what it takes to be prepared. The same is true for one of life’s biggest exams – selling a business. Having all the documents to sell your business ready for the broker will shorten the amount of time it takes to garner the greatest amount of qualified buyers and to attain the right price. Without all the pertinent documents, a buyer cannot make an informed purchase decision. The following items are a list of the documents and information needed to be ready to sell a business.

Profit and loss statement and balance sheet

These will bring a buyer up-to-date on the financial strength of a company since the last completed corporate year and resulting tax return. A buyer cannot rely on dated information since sales trends can change monthly. The interim financial information is also necessary for lending institutions, and it is a safe bet that financials dated within 60 days of closing will be needed from buyer as well.

Three years of tax returns and income statements

More documents needed to sell a business are three years of data will paint a picture of the stability of a company. A buyer needs to analyze sales the earnings trends to determine the direction the business is heading and also to be prepared for any cyclical trends. In addition, buyers need to track and analyze trends in expenses and margins. Even though sales are increasing, it does not mean a business is heading in the right direction.

Current asset list

It is easier to justify a business sale price if assets comprise a significant part of the sale price. Anything above asset value is goodwill and is more difficult to justify. Comprising an asset list with a total value of the asset at a fair market price will create a floor to the value of a business. It is important not to place individual values on assets, but rather to place a total value. By itemizing asset values, a buyer will spend more time questioning the value of individual assets rather than focusing on the collection of assets and the overall business. One exception to not listing out individual asset values exists when outside financing is used for a business transfer. A lender will normally require a fair market value to be placed on all assets over $500 including serial numbers.

Facility information

A prospective buyer wants to know everything about the facility that will house his new business. A few questions to ask are: Where is it located? Is there a long-term lease? Is real estate included in the deal? What is the square footage? If you are renting, it is imperative to perform preliminary due diligence to determine if the lease can be assumed, how much time is left on the lease, and other factors that would be covered respectively to the business transfer. Leases are not easy legal instruments to negotiate. The lease can be a deal stopper if attention is not paid to this area in the beginning. Most owners do not want to involve their landlords in the sale process until they know that the deal is going to go through. If the landlord is going to be difficult or change the lease term or rate to the buyer, it is a good idea to know what the new parameters will be before starting the process. If a landlord desires a longer lease than a buyer wants, a lease option to extend after the base period rather than a fixed long-term commitment may be used.

If you own the real estate and will be leasing to the buyer, it is important to determine the trend of building taxes and insurance and be prepared to put these trends in the lease. It is also important to determine the rent you would charge a new owner since it will have an impact on his cash flow. If you own the real estate and plan to increase the lease amount, be aware that this added amount would be subtracted from the cash flow resulting in a lower business sale price. Often the lease amount can be structured to remain constant for the first two or three years and then increase it. This delayed increase may not lower a sale price, as an immediate increase will. Again, awareness of these factors before the process begins gives you a stronger negotiating position.

Employee information

The most valuable asset in addition to FF& E (Furniture, Fixtures, and Equipment) is the employees. At a minimum, the following questions should be answered in the information prepared in a marketing package: How many employees are there? What is the tenure of each employee? What is the pay structure? Is there a stable workforce? Do the employees know the business is for sale? Is the owner willing to stay on as an employee? Whatever employee information is provided can be displayed without the use of specific names by replacing the names with titles.

Company history

A chronological summary of a business will provide a prospective buyer with a road map to a company’s history. A prospective buyer will be able to look at historic financial statements together with the company’s business history to perform an overall analysis. A sampling of questions to consider is as follows: Has a new line been recently added? Has the business been moved? When was this business formed? Is the business run by the original owner? What has been the marketing program since the company’s beginning?

If you are considering selling your business, contact Peterson Acquisitions today.