AP's Blog

Most business owners underestimate the amount of effort and time required to sell a business.  They suffer from what I call the “curse of knowledge”.   They are intimately familiar with their business, its customers, its earning power, and all its warts and beauty spots.  Unfortunately, they assume everyone else is too.  They forget that most buyers will have no clue about the business.  To prepare your business for sale, one of the most effective things a seller can do is to put himself in the buyer’s shoes.

Most likely, this is the first time a buyer will even have heard about your business.   Whether it is a strategic buyer, or a financial buyer or any other type of buyer, she or he will want to learn more about your business.  Here lies the tricky part, you don’t want to reveal too much (especially not your customer lists), but at the same time, you have to reveal enough to give the buyer a sense that yours is a well run, stable, and profitable business.   Most buyers are apprehensive.  This is after all a big purchase, bigger perhaps than his or her last house.

One of the easiest steps you can take to reassure a buyer is to have all your documentation ready to go.  This also helps during the transaction itself.  Here is an example of what you don’t want to happen.  Sam was in the middle of due diligence.  He had found a buyer for his bridal wholesale business.  Linda was eager to conclude the transaction, but requested two additional documents.   It took Sam three weeks to dig them up.  When he sent them over to Linda, she informed him that she had bought another business and was no longer interested.  Far-fetched??  Unfortunately this happens far too often.  The deal loses momentum everytime you stop to search old records.  Never assume that yours is the only business the buyer is looking at.

Here is a summary of documents you should keep ready…

Financial & Legal Documents

1. Financial statements (preferably certified) for the last 3 years
2. YTD (Year to Date) Financial statements
3. Tax Returns for the last 3 years
4. All debts and debt schedules
5. Entity/Corp filings, certificates
6. Profit Sharing plans
7. Copy of franchise agreement (if applicable)
8. Copies of Patents and Trademarks
9. Org Charts

Operational Documents

1. Real estate Leases
2. Vendor & Service contracts
3. Business Insurance documents
4. Employee lists (full-time & part-time), contracts along with benefits information
5. Customer contracts
6. Inventory information
7. Account receivables
8. Sales and Marketing collateral
9. Process manuals

Nice to Haves

1. SWOT Analysis
2. Customer Profiles
3. Business improvement plans for the new owner

Have you had other documents requested by buyers??  Add them in the comments section.