Getting Ready to Sell Your Business
Selling a business can be a complex and time consuming process. Be sure that you have a clearly defined reason for wanting to sell your business that you can articulate to others. Have you considered the options to selling your business? If you're selling because of a shortage of capital you could investigate bringing in an investor or partner.
How salable is your business?
Is there currently a demand for businesses like yours? You should know the true value of your business as well as how much the market will think your business is worth. Businesses bring higher prices if their metrics are trending upwards. You'll also have to decide if you're prepared to wait until you get your price, or whether you can you offer vendor finance to the purchaser.
Business structure
If the business is a partnership you need to have copies of signed partnership agreements. If the business is incorporated you should have copies of all the incorporation documentation, and if there are multiple owners of the business you should be able to document the holding of each owner.
Get the facts together
You'll need proof of the business' real income that will satisfy a prospective purchaser, as well as proof of ownership for all furnishings and equipment.
Are you willing to stay in the business for a handover period after the sale and if so, for how long? Will key personnel remain after the sale? You should also know if you can transfer your relationships with key customers and suppliers.
You should know what a realistic market rental for the premises would be. If you continue in ownership of the premises, what rent do you expect to charge the purchaser of the business? It's essential to understand the basis of what your prospective buyers and advisers are using to calculate their particular valuation of the organization; these need to be clarified so they can be given accurate information and not make unfavorable estimates.
The period of the handover is a variable that can often be used to clinch the sale. Stock valuation will have to be done by an independent source if records aren't accurate or if the inventory doesn't balance with those records. As noted above, old stock should be cleared before the sale process begins.
Restraint of trade or a non-competition agreement is often a sticking point. For how long will the outgoing owner be 'locked out' of the industry? This is something that will be likely to be demanded by the purchaser.
Prepare for due diligence
Due diligence is a part of every sale. It enables the purchaser to confirm what the vendor has told them about the business. You'll need to have tax returns for your business covering at least the past three years, and full documentation for all financing agreements, equipment leases and loans relating to furnishings and equipment.
You also need proof of ownership for all furnishings and equipment owned by the business, copies of any agreements with suppliers, customers and employees, and documentation for all intellectual property that the business owns. It's essential that all the business' tax returns, books of account, ledgers and supporting information are in agreement and that you can provide records of all stock in the inventory.
Finally, do everything you can to keep the sale confidential. This means handling inquiries about the business that won't give away it's identify and getting signed confidentiality agreements from all prospective purchasers and their advisers.
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