Fundamentals of Selling A Business - Preparation

Business owners invest much time and effort into their businesses, and most arrive at the hard decision to sell their businesses at some point in time. There are various reasons for selling a business, and although each circumstance is unique, most owners have similar incentives and concerns. It is an emotional and difficult process, and the most advantageous deal is achieved by understanding the steps and factors that determine the best time to sell.

After the decision to sell has been made, there are a number of preparatory measures that make your company more appealing to potential buyers, and they may take from two to twelve months to implement.

Financial Statements

You should obtain the most recent profit and loss statement from your accountant. It is preferable to also get the past two to three year's statements to show a historical trend and profile. The profit and loss statement shows both parties the income earned and costs incurred in the accounting period, the difference of which is the net profit.

You should address how you can strengthen or better document your company's financial health. Many owners minimize taxable income by using techniques to hide their earnings, however the smart buyer will recognize such tactics. Buyers will normally recognize the company's observable profits and will not pay for earnings that are not clearly documented. Since businesses are bought on a basis of multiples of earnings, the investment of taxes paid for a year or two would be repaid in multiples of that amount in a sale.

You can increase buyer confidence by having your statements audited which will accelerate the selling process and prevent delays in closing the sale.

Physical Condition of the Facility

The condition of the business facility indicates how you operate your business but more importantly, it gives potential buyers a good impression of what they are buying into. You should do what is necessary to make your business facility more presentable such as repainting the interior and exterior, reconfiguring the business to convey a productive and efficient working environment, making minor repairs, or simply removing garbage from the storage and work area.

Business Records

You should organize your business records such as any articles of incorporation, tax records, leases and contractual agreements, and payroll records. You should gather documentation relating to patents, trademarks, copyrights, licensing or franchise agreements, and bank loans.

If your business requires a license or permit to operate, ensure that it is current and readily transferable. You should get a hold of the necessary paperwork that would help transfer the license or permit to the new owner.

Businesses are either located in a leased or owned facility. If it is leased, you should check that you have a copy of the lease for review. Potential buyers are concerned with the lease terms, especially with the number of years remaining on the lease. It is optimal to have at least three years remaining which can be transferred to the new owner. You may want to negotiate with the landlord for an extension or an option to renew, and you should find out the conditions that must be met for a lease transfer, assignment, or sublease. If the facility is owned, you should have the property appraised.

Click here to Sell a Business for free.

Click here to return to the Seller's Guide.