Preparing Your Business For Sale

Michael H. Mosieur, Business Sales Specialist

A prospective buyer will be looking for some very basic information about your company. Some advanced preparation will not only be convenient but it will boost the buyer’s confidence level. Scrambling around looking for records at the last minute or giving incomplete information is not a good first impression. 

We have a very handy package we refer to as our  "Business Information Check List". This packet will help us evaluate your business and it will help you also understand what kind of information a buyer is going to wan tot see. This packet is designed to let us quickly size up your company and get a general idea f it's potential sale. Of course any information you supply to use will kept strictly confidential and will not be given to anyone without your permission. 

The buyer’s confidence level increases when the seller is professional and can answer the important questions. Gathering and preparing the following information will be helpful in explaining your company to a buyer and justifying your asking price. 

These are some of the topics covered in the packet.  We've included them here to give you a general idea of what information may be required.

WHY ARE YOU SELLING THE BUSINESS?

This is one of the first questions the buyer asks. In other words “If this is such a great opportunity, why are you selling it?” 

Retirement, relocating, illness, divorce etc are all reasons a buyer can easily understand. “I’m bored with it”, “It’s time for me to move on” these types of reasons make sense to an experienced business person. If this is your buyer’s first business, these reasons may be a deal killer. 

Your answer should be truthful and sincere. If you are having financial difficulties, are being sued etc., these things need to be disclosed. Any sale contract will address these types of issues and if you are concealing any problems you may generate serious liability for yourself. A lot of negative issues are not necessarily deal killers, but usually have a negative effect on price. It is best to be up front with all pertinent information.

Remember "it is what it is".

WHO OWNS THE BUSINESS?

Is your company a Sole Proprietorship, partnership, LC, C Corp, S Corp, Non Profit or some other type of entity? Do you want to sell the stock or the assets? Do all individuals who have the authority to make a decision to sell your company agree to sell?  This would be a question for your lawyer if you are not sure. This is very important information. Do not assume that your partner wants to sell. Before MBB will accept a listing we must know who all the owners are.

FINANCIAL

The following information should be collected and be readily available for the buyer’s inspection.

1- The previous 3 complete years financials, including present year to date. It is always best if these figures are prepared by or at least reviewed by a CPA. In some cases  buyers may request audited financials. Your CPA can help you with that requirement.

2- A detailed summary of owners benefit.  In other words how much money does the owner(s) take out of the company. Another way to approach it is to ask what expenses will stop when I sell the company.

3- A complete asset inventory,  desks, computers, tools, machinery, vehicles, special licenses, all assets that will be staying with the company. It is a good idea to list the assets you will be taking. For example the oak office desk that was a fathers day present. Make it clear what assets you are selling and not selling.

An asset list may include a long term contract or a franchise agreement you have that the buyer will be “inheriting”. In this case the buyer needs to be sure that the sale of the business from you to him will not interrupt that contract. You may own a process, patent or copy right. These need to be listed and valued as well 

4- A complete and detailed inventory list,  This is a living and changing document as while the negotiations for a sale are going on you are still doing business and inventory is changing on a daily basis. It is important to keep these records. The buyer may ask to monitor inventory levels after a deal has been made and we are waiting to close. Often a seller may start ordering less inventory in anticipation of the sale.  

5- The premises lease.  Do not assume that your present landlord will lease the premises to the buyer at the same rate that he is leasing it to you. It is best to clear this matter up early in the process, in writing!! 

If you own the building and are selling the business only and leasing the building back to the buyer, the terms of this agreement need to be in writing early in the negotiation process.

6- Equipment leases.  Are you leasing vehicles, pizza ovens, machinery etc? These need to be addressed. The lessor may agree to allow the buyer to assume the lease. Be sure you understand what liability if any you still have under the terms of an assumed lease. The lessor may not allow leases to be assumed so they may have to paid off. It is best to have the payoff figures and understand the terms of your equipment leases before hand.

7- Your Market Potential. A buyer likes to hear information about the “potential for growth.” Real hard facts are helpful. Projected population growth, “they are building a 10 story office building   across from my sandwich shop” these are positive  and helpful.

When you get excited about potential you are basically saying “…this might happen and you might make a lot of money”. A savvy buyer will want to know your thoughts on potential but typically it does not affect the price. Previous, real, verifiable numbers will have the most effect on your sale price.

You must help us sell your company

Selling your business cannot be a “back burner” activity. The broker and the seller both have to be proactive in order to complete the sale. 

The broker’s task is to bring qualified buyers to the table and the seller’s task is to produce records and information in a timely fashion. I recommend that the above information and questions be answered and addressed beforehand and that the records be easily accessible to a qualified buyer and be kept current.

Also, it is important that you be accessible, so that should a question arise I can get a quick answer to that buyer. Everyone’s time is valuable, but if you want to sell your business it will require an investment in time.

It is estimated that 4% to 5% of all businesses change hands annual. In our community industry statistics would show that approximately 200 to 300 businesses will change hands in 2005.

Why should I sell now, business is so good!!!!

That is a very good question. The answer is because you get the best price when business is good. Do you want to wait until you have a bad year and try to sell?

Solid businesses with good solid financials are selling!!!!. Lets talk 

Mosieur Business Brokers,  352-572-8828, mike@mosieurbusinessbrokers.com