You’re preparing your business to go to the market. What will buyers want to see from you? How can you prepare the right information in the right way to maximize the number of quality offers you receive and expedite the sale of your business?
When you’re selling your business, it’s essential to think about the process from a prospective buyer’s point of view: you need to understand their motivations and their needs. To aid in the successful sale of your business, you need to continually ask yourself what you would need or expect if you were in a buyer’s shoes.
Openness, transparency, a fair business valuation, and well-prepared information that can be provided on request: these elements will increase buyer comfort and confidence, as well as the likelihood of a successful sale. After all, you’d expect the same thing if the roles were reversed.
Having this information at the ready will not only ease some of the stress of selling your business, but it will also expedite the sale process, so you won’t be rushing to gather necessary information, stalling the deal. And frankly, providing accurate, important information in a timely manner to a potential buyer looks great: it showcases the care you’ve taken to build and value your business so that they can move forward with confidence.
Industry and Company Background
You are an expert in your industry, and you know your company better than anybody else. Distilling this information can give potential buyers some important context for your company and where it stands, as well as your company’s value in your industry.
As you prepare to sell your business, summarize the trends and forecasts for your industry, and the impact of those elements on business. Note any major changes to the industry at large, past, present, or future, and show how your company has adapted to, kept up with, or is anticipating keeping up with those shifts.
Put together detailed information on the background of your company. Much of this information will be included in your pitch package; having it available, at your fingertips, will expedite the sales process and increase the trust that prospective buyers have in you and your company.
Have the following information at the ready:
- Company history, including company type, the year it was started, ownership history, location(s) of business, ownership makeup, and its basic operations/services.
- Detailed information on the company’s products and/or services/operations, including:
- how the company acquires customers
- a breakdown of the full sales cycle of the company’s products/services; and
- products/services that are in the works for the future
- Personnel info:
- organizational chart;
- employee agreements (e.g., deferred compensation and/or stock options);
- Board of Directors information, if applicable
- HR policies, employee manuals; and
- future plans for hiring
- Comprehensive list of assets (such as real estate, equipment, inventory, website domain, or patents or other intellectual property)
- List of customers (including key customers and what percentage of total revenue is made up of these key customers)
- List of suppliers
- List of key competitors
- Explain how you differentiate from them (your competitive advantage)
- List of partnerships, joint ventures, or affiliates
Buyers will want to see all this information both upfront and while performing their due diligence, and having it quickly available can ease the process and create trust.
Financial Information and Documents
Having up-to-date and accurate financial information can be the most essential piece to closing the successful sale of a business. Failure to provide this information in a timely and accurate way is one of the leading causes of a deal falling through.
Your prospective buyer(s) should have a clear understanding of what the business produces in terms of revenue and profit. Prepare three years of adjusted profit and loss (P&L) statements that address the company’s adjusted net income.
It’s important to recast or adjust your financials to include what you have earned, but altered for tax purposes. Improve your income by adjusting:
- Owner compensation,
- Bonuses, and
- Other expenses that are either one-time expenses, personal in nature, or outside the ordinary course of business (e.g., one-off legal fees, charitable contributions, gifts, etc.).
Other important documents to prepare and have available are:
- Tax returns for the past three years (that, of course, mesh with P&L statements provided)
- Monthly bank statements (for the past three years, if possible)
- Current accounts receivables and payables
- Summary of payroll (including the owner)
- Current capital commitments and/or expenditures/investments (debts)
- Contracts with manufacturers, suppliers, customers, vendors, distributors
- Make sure to note if any are long-term contracts
Having clean financial statements and up-to-date financial information for your company takes some time to assemble, but it is perhaps the most important thing you can do to prepare to sell. Prospective buyers require this information to make informed decisions about potential investments. If you’re able to provide this information quickly and clearly, you’ll greatly increase your chances of a successful sale.
Selling Points: Your Pitch
Your business is unique, and it’s important to ensure that its one-of-a-kind strengths and assets are visible as you move forward to sell. Establish a list of key selling points to market what makes your business stand out. Potential assets could include:
- Media mentions, media/industry awards, etc.
- The company has a strong team of employees or a highly-skilled workforce
- A trusted brand/reputation (for instance, has been operating for a long time)
- The business possesses patent on technology or innovation, or any intellectual property rights (trademarks, copyrights, etc.)
- The company serves a niche market
- Strong and growing profits year-over-year
- The business holds a large share of the market
- Any other notable achievements that will help your business stand out
Clearly defining what makes your business special will help you to pitch more successfully and confidently to a larger range of buyers and will also demonstrate value to prospective buyers.
Concerns and Risk Factors
Risk factors for your business or in your industry should be addressed and cleaned up as much as possible prior to bringing your company to market.
Some examples of risk factors that should be addressed are:
- Lawsuits (past or pending)
- Regulatory concerns: for instance, is the business subject to licenses, franchises, government regulations, or special and expensive insurance?
- Environmental concerns
- Current or upcoming technological advances that may affect the company or make it obsolete
- Revenue diversification and customer concentration: can the business run without a key customer or key customers?
- Limits to scalability/expansion:
- due to legislation/regulations by government, or
- any agreements restricting the conduct of the business
- Owner/key employee dependence
The last point is an important one to ensure that you address, and it may take some time to do so. You need to ensure that you are not indispensable and that your business can run in the future without you. The same goes for any key employee — ensuring that your operations aren’t dependent on the skills of anyone or two employees will greatly decrease the risk factor in your sale.
The less dependence your business has on you, the more willing a prospective buyer will be to move forward. It will also ease the process as you shift to new ownership. Read more about the risk of owner dependence and how to reduce it.
The Trust Factor
Of course, it’s impossible to avoid all risk factors in any business. The critical thing is to make sure you’re moving forward with a potential buyer in a transparent way, in order to build trust.
Let the buyer know early and clearly about any risks or concerns—as well as how they can be addressed. Doing so will avoid damaging your relationship with the potential buyer and reducing the sale price. Ultimately, undisclosed risks—or risks that are disclosed too late—can be a huge deal-breaker.Operate with openness and transparency, have up-to-date financial information, and ensure all your business information is well prepared and readily available. Doing so will only serve you well, and help you to establish trust with prospective buyers, ease the selling process, and, ultimately, aid in the completion of a successful sale.