By Mark Schmitt and Mignonne Hollis
Dear M &M: I am considering selling my business. What are some of the things I should do to prepare?
— Dan
Dear Dan: Determining how much you are willing to sell for will be important. Remember what you are thinking your business is worth and what someone is willing to pay are very often two very different amounts.
One of the most important items on the list would be to prepare a sales agreement. This is something you might want to get a qualified attorney involved with. Accuracy and legal are two important words that come to mind. Make sure before you disclose any business information you have everyone sign and date a Non-Disclosure/Confidentiality Agreement. It is important to inform all potential buyers that it is important they keep all business information you reveal to them confidential, that this is important to you and that there are legal consequences if they do not comply with the Non-Disclosure/Confidentiality Agreement. I would have an attorney assist with the non-disclosure agreement.
The following is a checklist recommended by the SBA of items that should be addressed in the agreement: Names of seller, buyer, and business, background information, assets being sold, purchase price and allocation of assets, covenant not to compete, any adjustments to be made, the terms of the agreement and payment terms, list of inventory included in the sale, any representation and warranties of the seller and buyer, determination as to the access to any business information, determination as to the running of the business prior to closing, contingencies, fees, including brokers fees, and date of closing.
Other documents you want to have readily available include: Three to five years of company tax returns. In addition, three to five years of professionally prepared financial forms (income statements and balance sheets). If the business involves any leases from equipment to building all copies of current leases need to be available. Details on transferability, buy-out, terms and conditions on any existing lease agreements need to be available. If the sale includes any real estate, copies of deeds of trust, liens, mortgages or anything that relates to the ownership or transfer of title has to be present.
If you are selling the business entity all corporate records must be on hand to be examined. In addition, if the legal entity is being sold bank accounts generally are part of the sale. Any business licenses or permits required to run the business that are part of the sale must also be part of the records that need to be readily available. Any contracts, accounts receivables, or purchase agreements in place at the time of the sales should be available.
A complete list of equipment, fixtures and inventory would be another important item to have to avoid any discrepancies down the road. Customer lists, supplier lists, trademark, patent, secret recipe or special process if part of the sale should be included.
Having the above information readily available to serious-minded prospective buyers will be important. Remember, you can hide or not reveal account numbers on bank accounts or other confidential business related documents, but have the reason available like client confidentiality or company security.
Be honest with prospective buyers. If you have any issues like litigation, loss of a huge customer, tax problems, or any unpaid bills that would affect the company be upfront. Be prepared to answer, why are you selling your business? A rule of thumb, most surveys tend to agree with is, “only ten per cent of all businesses actually sell” to someone else. Most businesses just close their doors and go away.
Having a fair selling price and having the above documentation readily available goes a long ways in being prepared to enable you to present your business when a potential buyer comes knocking.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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