When selling a small to mid-sized business, owners should have their paperwork and financial information ready to go! They should also have a short business plan of past history, current operations, and potential for the future. In this BizBen Discussion several advisors and intermediaries weigh in.
1) balance sheets and profit and loss statements going back at least three years and as current as possible;
2) supporting documentation such as accounts receivables and payables ledgers;
3) copies of any leases and other written agreements with vendors as well as employees, for which the new owner may be responsible;
4) list of assets, including capital equipment and inventory, to be included in the sale;
5) a general overview of the business with information about how long in operation, how many employees, hours of operation, explanation of what the company offers to the market, description of the customer base and summary of financial information. This document also should include a mention of how the company has performed in the past few years and what is expected in terms of growth in the future.
The owner selling himself (or herself) needs to have a “buyer non-disclosure” form that should be signed by anyone who wants to learn about the business offering.
1. Monthly sales figures for the last 36 months
2. Details regarding any customer database (number of customer contacts, how recent the contacts are, and the geographic distribution of the contacts)
3. A complete, detailed, line-by-line itemized FF&E list (furniture, fixtures, and equipment) of ALL assets, with a reality-based cost to replace each item with like kind, condition, and age of asset. (In short, what the seller would need to receive from his insurer in case everything was destroyed in a fire.) This is its real value to a buyer, as it answers part of the question: “Start a new business or buy an existing one?”
4. Three years of tax returns (important for obtaining purchase-money pre-approval for the business). The buyer won’t see these until later in the process, maybe not until due diligence; but, the broker can use them to get financing pre-approval, which will greatly increase the response to the “business for sale” ads.
5. Employees — position, responsibilities, qualifications (education, training, experience, skills, etc.), annual wage/salary, length of employment, but NOT names. Designate who is a manager — or could be when the current owner leaves.
– List of Furniture, Fixtures and Equipment at original cost.
– Copies of Equipment Leases (If applicable)
– Complete Copy of Lease (If applicable)
– Copy of Lease Assignment (If applicable)
– Copy of proposed new lease (If applicable).
– Samples of documents you use to market and promote your business
– Corporate, Partnership or Spouse Approval to sell the business
– Copies of Notes to be Assumed by Buyer
– Copy of Franchise Agreement, Franchise Application and FDD (If applicable)
-All corporate formation documents (articles of incorporation or articles of organization)
-Any partnership or shareholder agreements between you and other owners of the company
-Copies of all of your corporate records (minutes, resolutions, share ledger, etc.)
-If your share ledger is not clear, and many are not, a capitalization table showing who has owned what shares, with a separate column for each time there was a new shareholder/investment that changed things.
-Check that your entity (if a corporation or LLC) is in good standing, and if formed outside California that it is registered in California if need be. You don’t necessarily need a formal certificate of good standing. Just make sure the entity is active so if the buyer does their due diligence you aren’t in for a surprise.
The lists of standard documents below are a good starting point. If I am on the buying side I’ll always want to see any employment agreements/offer letters/handbooks, any material agreements with customers or suppliers and explanations of any litigation if there is a history of it with your company. A buyer who is well represented will find out about any past or pending legal issues so it’s worthwhile to be prepared and make sure you’re disclosing properly.