Prepare to Sell Your Business
Selling a business is a complicated endeavor, one that requires preparation from the moment you start your company. Much like selling a house, you must prepare documents and take certain steps to make your business attractive to potential buyers. Below, we divide the steps one must take to prepare to sell a company.
Preparing Essential Documents
There’s a list of documents that are needed to sell a company. These documents hold essential information about your company that you should keep organized and on hand at all times.
These documents include:
- Tax Documents from the Past Five Years
- Internal Financial Documents from the Past Years
- Comparison of Previous Year’s Financial Statement with This Year’s Statement
- Board Meeting Minutes or Annual Minutes, If a Corporation
- Customer List
- Vendor List
Recasting Your Business
Operating a business often involves taking advantage of loopholes that result in deductions and tax credits, ie. putting family members on the payroll or paying yourself with the occasional perk. When it comes to selling a company, however, it is in the seller’s best interest to represent their business as profitable as possible. So you may want to invest back into your business in order to show its true value. This will increase the taxes you have to pay, but it is worth it to spruce up your business for potential buyers.
Preparing a Confidential Financial Memorandum
It is, of course, imperative to provide potential buyers with the detailed ins and outs of your business. This history and strategy specific to your business is outlined in a confidential financial memo. This memo might include:
- A brief history of your business, such as when you started, how you started, how you hired your first employees and how you secured patents
- A guide to who performs what roles in your business, detailing everybody’s responsibilities, salaries, job experiences and union status
- A guide of your customer’s base, detailing their location, preferences, relevant details and the amount of business you conduct with them
- A round up of your constant payment obligations including your lease
- A list of your debts and assets, including any equipment, trucks or trailers with a precise description of each asset
- Disclosure of any legal or regulatory problems the business has faced. This is important especially in getting ahead of any future lawsuits alleging you knew about an issue but failed to disclose it.
Caveats to a Confidential Financial Memorandum
The Salience of Discretion –
You may choose to not immediately divulge your plans to sell to your employees, vendors, or customers
The Salience of Weathering Difficult Times –
It is important to demonstrate profitability and rein in profligacy even under difficult conditions
The Salience of Structuring Your Deal –
Your deal to sell should be structured in the most tax-ideal way
The Salience of Brokers –
Just like when selling a house, you need a party who is knowledgeable and trustworthy to broker the sale of your business