Sharing Key Information When Selling your Business
There are many components and attributes of a business that make it attractive to potential buyers. It could be your solid history of profitability, a sizeable and extremely loyal customer base, or a distinct and marketable business advantage over your competitors — like long-term contracts with customers or an exclusive distributorship. It could also be the opportunities that the buyer sees for expansion, a great location, or a highly talented and dedicated group of employees.
A buyer may be interested for any number of reasons, some of which you may not even have considered. Nonetheless, it would be very rare for a buyer to knock on your door (or contact you via your website) and make you a lucrative offer virtually sight unseen. No, it will typically take some preparation on your part and answering some requests for information. In return, you can glean some valuable information from the prospective buyer.
Let’s look at the type of preparation that will be required of you and what you can ask of a buyer to determine if they are qualified and meet your expectations.
Preparing Your Business for Sale
Let’s start by saying that if you’re even thinking of selling your business, you should begin to gather the information that will be requested by the potential buyers. You could be humming along with a successful business when a seasoned industry veteran makes an inquiry. Without any preparation, you hopefully will have at the ready a list of repairs you’ve made, your current books, and a ballpark asking price. But a legitimate inquiry from a serious buyer will require much more.
For example, he or she may want to know about the demographics of your customers, the average daily sales, the average size of orders, and a list of long-term contracts. If you’re going to consider an offer, you need to be prepared with this kind of information. If you don’t have a way of producing the data quickly, that buyer may be down the road and making an offer to your competitor. It can be hard to understand the degree of fervor and intensity with which a potential buyer may scrutinize your company. An experienced buyer may know things about your business that you don’t, putting you at a disadvantage in the sales negotiations. Don’t let that happen: work with an experienced business broker who can help you gather information and organize your financial data.
First things first: make certain that you have your books in order. Failing to provide accurate financial statements for your business in a timely manner can result in the quick disintegration of a buyer’s interest.
Additionally, make sure to have these types of information available before you think about positioning your business for sale:
- The last three years of profit-and-loss statements;
- The previous three years of balance sheets;
- A year-to-date profit-and-loss statement;
- A current balance sheet;
- The last three years of your business income tax returns;
- A list of business furniture, fixtures, and equipment;
- A current inventory; and
- A recent commercial property appraisal or your lease agreement.
You should be prepared to provide other information, as well. This will be especially true during the due diligence phase. This may include items such as your insurance policies, employment agreements, customer contracts, intellectual property, equipment leases, and monthly bank statements. In addition, make your business visually attractive to potential buyers by doing any needed cosmetic improvements, eliminating outdated inventory, and checking your equipment for any problems.
Meet with an experienced business advisor and broker to help you get organized and to set a sales strategy in motion.
Qualifying Your Potential Buyers
Once you’ve assembled all of this financial information about your business, you don’t want to waste time and energy on a buyer who won’t be able to close the sale. Serious buyers will sign a confidentiality agreement prior to your providing them anything more than a generic profile of your business. In addition, it would be nice to exchange information, so that you have some sense of the type of individual or company that’s considering the purchase.
It’s not uncommon for a seller to require that buyers submit basic information, such as the following:
- The buyer’s name and contact information;
- Their previous employment;
- Any previous ownership of businesses;
- Their educational background;
- The available funds for investment;
- The sources of their financing;
- A required minimum monthly income;
- Their anticipated timeline to complete the sale; and
- Their reasons for their interest in your company.
Selling Your Business
Once you’ve located a qualified buyer, you can give them a selling memorandum and get ready to entertain an offer. The exchange of information can cease when you ask that an offer be presented. This should be a nonbinding letter of intent or a term sheet that details the major terms of a deal.
Andrew Rogerson is happy to help you sell your business in the Sacramento area. He knows the area and has worked with Sac business owners and prospective entrepreneurs for many years. To discuss the sale of your business and to learn more about other business opportunities, please visit our website Services and choose from the drop down menu the information you’d like.
For more immediate help, please send an email to Andrew or call him at (916) 570-2674.