Preparing for the Sale of Your Business

Taking steps to prepare your business for sale will ensure the transaction goes smoothly as well as making it easier for you by having everything prepared in advance.  A well prepared and organized Seller makes a great impression with a prospective buyer.  

Below is the key information to have prepared and on hand when you are ready to sell your business.  

  1. Tax Returns: have PDF copies of your last 3 years corporate tax returns handy.  These will be required when you list the business to determine the company’s Discretionary Earnings and Market Value. 

  2. Clean up books & records: make sure P&L is correct, Balance Sheet, and A/R 

  3. Owner’s expenses and benefits: 
    • Break out Owner’s benefits and expenses into preferably separate expense accounts or identify these expenses in a list with details.   This information is required during Due Diligence and for the SBA lender during underwriting. Some typical owner expenses are;
      • a) Owner’s family health & life insurance 
      • b) Family mobile phone expenses 
      • c) Auto and truck (non business) 
      • d) Family salaries if not working in the business.  For family members working in the business their salaries are adjusted to market rates for a replacement 
      • d) Other non business expenses 
    • One Time Expenses:  These are expenses for one time costs such as equipment and computer purchases, tenant improvements, one time legal costs (not normal legal expenses incurred as regular business), moving to a new facility, etc.  These expenses must be outside of normal operating expenses and an unusual expense. 

  4. Top Ten Customers: a top ten customer list will be needed with annual sales for each customer.   If there are customers that represent more than 20% of annual sales this should be disclosed to prospective buyers.  This is not necessarily a problem if these have been long time relationships. It is important for us as your broker to be  aware of this upfront so we can address it in our Confidential Information Memorandum in a positive manner.  

  5. W2 Employees 1099 Contractors:  If all of your employees are W2 that’s great news.  If you are using 1099 Contractors this could be a problem.  California Bill AB5 and the Dynamex case ruling has narrowed the use of independent contractors.  If you are using vendors that are separate companies this is fine. Employing individuals as independent contractors is generally a problem and you should ask your legal advisor about this.  The use of independent contractors as company employees can be a problem in the sale of your business. Contact us and we can review this with you. 

  6. Employee List 

  7. Equipment List 

  8. Lease/Building information: Provide a copy of your lease to your broker.

When your business has a signed offer all of the above information is required in order to complete Due Diligence. The business cannot be sold until the buyer completes Due Diligence.

Preparing for Due Diligence for the Sale of Your Business