Small Business Owner: Preparing Your Business for Sale

by Martin Hansen

Small Business Owner: Preparing Your Business for Sale

When preparing your business for sale or for a valuation by a third party, it’s important to remember that first impressions are critical to a prospective buyer. To ensure your business passes the “curb appeal” test, complete these two steps.

Step One: Documentation

Get your business documentation in order. This means everything from A-Z. Consider the list below as a sort of a “catch-all.”  Some of the items below may not be available or applicable, however if you have something close, it’s best to prepare it for review by the buyer(s).  For more assistance and checklists for  prepping your business for sale, consider using DealMaker360 Small Business Edition.

  • Personal Financial Statement Form for Buyer to Complete – make sure the buyer is reasonably qualified to buy and is not just “kicking tires” and that they’re not a competitor checking your info out
  • Financial Statements and Tax Returns for the Current and Past Two Years (if applicable) – buyers will need the “numbers,” so get these ready and in the correct format
  • Accounts Payable and Accounts Receivables Aging Reports – these will be important for a buyer to understand the cost of running the business (you can redact customer names if necessary)
  • List of Fixtures, Furnishings and Equipment with Value Detail – create a list with each asset, and place a FMV (fair market value) on each asset, remembering that it’s important to be reasonable with the values
  • Inventory List with Value Detail – if your business has inventory, get a good handle on what you have, then liquidate all obsolete or damaged inventory before the buyer reviews
  • Product/Service Descriptions and Price Lists – will be critical to the buyer for the on-going operations of the business
  • Supplier and Distributor Contracts – will be critical to the buyer for the ongoing health of the business
  • Insurance Policies – will be critical to the buyer to understand the type of coverage needed, and the costs associated with coverage
  • Client List and Major Client Contracts – will be critical to the buyer for the ongoing health of the business (redact names until final due diligence)
  • Equipment Leases and/or Loans – put together a list of these type of agreements, if any, as these will need to be paid off or assumed at the close of any transaction
  • Staffing List / Payroll reports – Put together the names, titles or job descriptions, and pay rates of all employees and 1099 contractors, as this will be important for a buyer to understand and be comfortable with going forward
  • Employment Manual, Procedures Manual and Safety Program – put these together if available as they will be important to the buyer. Also, it’s quite possible that having these in place will increase the value of your business by reducing the perceived “risk” for the buyer(s)
  • Building and/or Office Lease/Purchase – if you’re the seller, and your company is leasing a building, prepare copies of the all lease agreements so the buyer can review and prepare to assume the lease. If you own the building and wish to lease to the new buyer, gain a good understanding of the market and what terms you should expect from the buyer of the business. If you desires to sell the real property with the sale of the business, commission either a full or curb-side appraisal to understand the market and value.
  • Asset Depreciation Schedule from Tax Return – depreciation can be important to a buyer, so have this information ready, and consider obtaining tax counsel related to purchase price allocation
  • Business Licenses, Certificates and Permits – if applicable, these will be critical to the buyer for ongoing operations of the business.
  • Corporate/Business Legal Structure and Ownership Documents – regardless of whether your business is an LLC, “S” or “C” Corporation, or a Sole Proprietorship, prepare documentation of the business’s legal (tax reporting) structure for review by the buyer
  • Prepare other documents unique to your business, as well as photos of inside and outside of the business

Step 2

Get your location(s) in “inspection grade shape.” Your place of business must show well.  Complete the tasks below to ensure that you receive maximum value for everything related to the business and any real property your business inhabits.  Look at your operation as a buyer would, and get it in great shape for the eventual buyer tours.

  • Office Space – remove all “clutter.” Organize everything, and repair or replace anything broken, old or “ugly.” Then walk through the offices to validate that everything that needed to be repaired or replaced was handled. The process is very much like getting your home “staged” before you list it for sale.
  • Yard Space – clean and straighten the yard space completely. Rid the yard of broken-down items, remove any perceived safety hazards, along with anything that would be considered waste – hazardous or not.  Confirm the yard looks lineal, therefore organized.
  • Shop/Manufacturing Space – organize it completely. Rid the shop space of any waste, trash, and improper signage. Make sure all washrooms are clean, organized, and free of anything that is not part the “restroom” experience.  Clean all equipment/machinery, and confirm that all is in good working order. If not, fix it, part it out, or sell it.  Confirm all employment-related signage and safety requirements are up to date. As a quick example, if your business revolves around safety, make sure their lines are re-painted – this shows that you care about safety.

Now that you have all of your business documentation in order and the business property is “ship-shape” inside and out, your business is officially ready to market for sale. For a results-driven workflow to guide the entire transaction, including assistance with the process of prepping your business, consider using DealMaker360. Good luck!

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