Essential Keys Successful Sale Of Your Business

Essential Keys Successful Sale Of Your Business

A comprehensive checklist is key to help you prepare for the successful sale of your business. It is important that you know the probable value of your business so you do not list it at too high a price or too low a price, both of which work against your goal of selling your business for what it is worth. It is important to get a professional Valuation of your business so pricing is justified and supportable.

It is vitally important that you have and provide documentation to prove that your asking price is reasonable. Financial statements and lease agreements are essential for this.

Serious Buyers will want to do their research and review all the documentation provided. This, of course, is different from tire kickers who don’t need the financial information about your business.

1. Choose Professional Advisors

Each member of your sales team is important to your success. Your professional sales team is important to both offer information and assistance to you and your ultimate buyer. Your first step is to build your team.

Business Broker A good Business Broker is a must, unless you are selling your company to a family member or an employee(s). Yes, you will have to pay a commission. The commission amount can vary depending on the size of your business (typically between 6 – 10% of the sales price, depending on the business size and complexity. A Business Broker typically stays on top of the latest trends and knows how to both guide you through the process as well as potential Buyers. In California, a Business broker is a commercial and real estate specialist who has the required Broker license to represent you.

Accountant You may be a sole proprietor, a Subchapter S Corporation, an LLC, or a C. Corporation. It is important to hire and follow the advice of an Accountant when selling your business. It is vital that financial information be provided in a truthful and professional way, including an updated list of all accounts receivable.

Attorney Many attorneys are experts in a particular type of law. Some attorneys, though, are experts in business sales. Those who are experts are familiar with all the issues that could arise that would cause problems, know how to solve those problems, and know how to simplify the process.

2. Identify the Reason for the Sale

You should prepare in writing an explanation of the reason(s) you wish to sell your business.
Common reasons are typically:

• Retirement

• Relationships with partners/investors/spouses or significant others are not working.

• Family Illness of sickness of the owner or someone the owner needs to care for.

• The owner must move

• The owner now has other business/professional interests.

3. Business Records

This step can seem the most daunting part of preparing your business for Sale. Once you are organized, however, it really helps move the needle forward. The business records must be as thorough and informative as possible so the best and most detailed information can be given to pre-approved Buyers. This listing package should include:

• Most recent Profit and Loss Statement: This statement should be the actual EBITDA after adjusting for all Seller’s personal expenses. These items can be avoided by the new owner, who may choose to spend less or not spend as much or not spend as much. Your accountant/bookkeeper can look at the tax returns, which helps increase the bottom line. This helps ensure the most accurate valuation of the business.
  
  

1. Vehicle (if owner owned a company vehicle)

2. Entertainment of Customers

3. A-typical advertising and marketing campaigns

4. Perks to customers and/or workers/employees
   
   

• Tax Returns Businesses should submit the last 3 years' tax returns. Also, additional Tax Documents.
  
  

• Existing Lease Agreements Property, equipment, equipment, and Vehicle(s)
  
  

• Property Information (if being sold with business)
  
  

• Business Entity Information
  
  

• Environmental Information
  
  

• Licenses (i.e. business, health department, liquor, Partnership agreements, supplier agreements, etc.)
  
  

1. Any general license requirement

2. Registration of Taxes

3. Any Health Permits Required

4. Any occupation licenses issued by the state

5. Any Liquor license requiring transference

6. Any Lotto License

7. Any Seller's resale license required

8. Any new Zoning/permits required for the current use

9. Any Health Department Permits required
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• Credit Agreements A supplier might extend credit for raw materials or Services

• Creditors This can include information on loans for business equipment, software, raw materials, and/or other property. This can also include equipment, vehicle(s), and property leases.

• Accounts Receivable This information is useful for buyers to understand the cash flow of the company. This information is also vital to allow a buyer to see how much money is available from the company’s operations.

• Intellectual Property Documents These documents are essential to ensure that everything is done correctly. For the sales process to be completed this documentation must be provided. A commercial/business lawyer who is familiar with intellectual property documentation requirements is of great value.

• Notification to/from the Government In many sales, notification must be given to the Secretary of State about any sale or change in ownership of an LLC or other entity. Both the IRS and the Department of Revenue in California must be updated. In many cases, a new Buyer must apply for and receive a new EIN number from the IRS for the new business entity they are now operating under.

• Employment Information and Contracts It is crucial for the new owner to both understand any employment contracts with existing workers and to have the option to retain all necessary current workers.

• Pending Lawsuits Are there any pending lawsuits against the business and/or owner(s). Never conceal the business liabilities, as doing so may constitute fraud.

• List of Stockholders, Shareholders, Partners. This is important for obvious reasons. Also, did the IRS ever audit these owners of the business or the business itself?

Additionally, the following information should be included:

• Business Documents These documents are essential to describe how the business works.

• Equipment and Facilities Maintenance Agreements This includes vehicles, business equipment, copiers, etc.

• Written Business Plan This describes your business from its inception through today. It should contain a description of both the current business operations and future plans.

• Marketing Plan (if any) How you promote and/or how the business should be promoted in the future.

• Contracts with Existing Customers and Suppliers If raw materials are required to make your product you must prove they are available to the new owner. You will also need to to provide a list of all customers and any customers that have signed long-term contracts for goods and services.

• Current Price List for Goods and Services If necessary, include price lists that show any changes that have occurred in the past, if your business has produced a product or products for many years.

4. Business Licenses and Contracts

It is important that this information be organized in a proactive manner. Determine and report each lease and agreement's start and end dates. Determine if you are required to create assignments. This is important because it can take time to resolve license and contract issues such as:

• Are you a sole proprietor, an LLC, a Sub Chapter S Corporation, or a C Corporation? It may become necessary to dissolve the current business entity as part of the sale.

• Do the bylaws of the business contain termination rules today?

• Is there more than one owner? Each owner must agree to the sale.

5. Supplier Contracts

Many companies have agreements with businesses that supply goods an/or services. A business might have contracts with a cleaning service or a machine shop to get parts. These contracts must be honored by the Buyer. This requirement might be a part of your existing contract. These contracts might also have an ending date. The Buyer may want to extend the contract as part of their purchase contract.

• Are you a sole proprietor, an LLC, a Sub Chapter S Corporation, or a C Corporation? It may become necessary to dissolve the current business entity as part of the sale.

• Do the bylaws of the business contain termination rules today?

• Is there more than one owner? Each owner must agree to the sale.

6. Business Assets

A business typically has many assets that can be seen. One can see an office a warehouse, a factory, a fleet of vehicles, and manufacturing equipment as well as many other assets. There may also be other financial aspects of the business that can’t be seen. These are called intangible assets these may include:

• Intellectual property such as trademarks, logos, patents, licensing agreements, etc.

• Customers who have been past customers and who are so loyal that they will also be future customers.

• Business Name Brand – The number of years the company has done business under the current name? Whether this name is being released to the new Buyer as part of the Sale.

7. Inventory List

It is important to provide the prospective buyer with a current inventory list. This list can include furniture, office/factory equipment, raw materials, goods held for sale, etc. All of these are classified as business assets

8. Insurance Requirements

Make a list of all Insurance Policies, including their policy numbers. Include in this list all the coverage amounts and coverage periods for each. Some Buyers may choose to keep the same insurance company and/or carriers and the same coverage amounts. Keep in mind that you will be responsible for cancelling coverage that the buyer may no longer need or want.

9. Outstanding Projects or Commitments

List all outstanding production orders or projects that will not be completed when the business is sold to its new Owner. This list should also include the completion date anticipated. Buyers will view the outstanding projects as liabilities that could become a problem. For example, a job could be delayed because of problems with suppliers. If you as the Seller, are proactive in explaining what is happening and what is happening to complete the work or service liability can be reduced.

10. Information Technology of the Business

Another key to a small business sale is to take a look and be prepared toprovide the new buyer with all of the security for the business's information and technology systems. Perform and prepare a relevant audit of all programs and ensure that all software is up to date and there are data backups for all programs. Prepare a list of all login credentials that can be shared with Buyer and be prepared to assure that everything effectively transfers to the Buyer for all digital products and services necessary to run the business.

• Make sure to keep track of all software used so that information can be passed on to the new Buyer.

• Share all passwords and credentials with the new Buyer.

• At the appropriate time, update ownership and contact information for the software and website hosts.

• At the appropriate time. Share with the new Buyer when all software renewals are due and create of list of the same for the Buyer.

11. Business Operating Manual (if any)

A prospective Buyer should be familiar with both the employee handbook (if any) and any employee benefit plans in place. Information about the Benefit Plan(s) include information about health insurance and retirement plans, and accounts (if any). Should be made aware of any earned yet unpaid bonuses owed to employees.

12. Waste Disposal

Does the existing business have a company plan to dispose of all waste it produces. Your company might deal with dangerous chemicals of other materials such as gas and/or oil. This could produce large quantities of cardboard and/or waste paper. Buyers will most likely address the company’s disposal methods as part of their due diligence.

13. Environmental Audit of the Business

If an Environmental Audit is part of your business sale the Environmental Auditor may examine:

• Any environmental permits required for the business to operate.

• Are those permits past due, and when are they up for renewal? If so, at what cost?

• Are there any outstanding remediation orders?

• Is there an ongoing remediation requirement?

14. Confidentiality / Non-Disclosure Agreements

There will most likely be three (3) different types of confidentiality Agreements you will want to be required as part of the sale of your Business.

• When listing your business with a business broker to sell your business, you may want that broker to sign a Confidentiality/Non-Disclosure Agreement. This protects you against a Business Broker who might misuse the financial or confidential information about your company to your detriment

• When providing information about your company to a prospective buyer you will want to have them sign a Confidentiality/Non-Disclosure Agreement so they don’t share the information with the general public to your detriment.

• After the sale is completed, you may want to include a Confidentiality/Non-Disclosure Agreement because you want certain aspects of the deal to remain private. Perhaps the reasons for selling your business are personal or a family matter that you do not want disclosed.

15. Tax Implications of Selling Your Business

Know and verify all the various Tax treatments and consequences of Selling your business. Your Accountant/Bookkeeper, Attorney, and Your Estate planner/wealth manager are best equipped to advise you for Tax consequences of the sale.