We have prepared a checklist for you to use as a guide through this process. This list will help you: 

• Think through your goals for selling,
• Consider efforts towards business optimization before a sale to maximize your value,
• Prepare all of your business and legal documents, 
• Choose a broker and prepare for listing your business, and
• Close on a sale that sets you and your business up for the future. 

Pre-sale preparation: Setting the foundation for a successful sale

Before you start the concrete process of putting together your plan for a sale, you need to have a solid understanding of your end-goal for selling. Part of this is simply why you want to sell: perhaps you want to retire, or invest into a new venture. This will inform the specific exit plan you take, such as  passing to a family member, a business partner, to your employees through shared ownership, or selling to a separate business looking to expand their own operations.

Determine the reasons you want to sell and understand the “why”

First and foremost, understand your own “why” for selling your business. Are you planning to retire? Are you planning to move to a new business venture? Or perhaps you wish to stay involved but with less involvement and sell only a portion of your business to a new partner that can take over portions of operations? 

Visualize your ideal buyer

Imagine what kind of buyer you want to take over the business. Many owners are most concerned about the legacy and brand they have built and want to ensure it endures future ownership. Others want to maximize sale price through a structured exit that keeps them involved for  a time, optimizing and even growing the business before sale. Others still want to ensure stability for their employees and their own future. 

Each of these are important and picking one priority does not necessarily mean giving up another. 

Determine your exit plan

Exit plans come in various forms, have different pros and cons, and require different methods of preparation depending on the one you select for yourself. Professional advisors like attorneys,  accountants, and your broker will be able to guide you on the specifics. 

The most common exit strategies for small businesses are:

• Family Succession Plans: This passes your business directly to a member of your family.
• Management Buyouts (MBOs): This plan sells your business to a partner or trusted investor who can take over operations.
• Employee Stock Ownership Plans (ESOPs) This increasingly popular strategy sells the business to your employees who then share ownership into the future and can bolster their retirements through their own individual shares.
• Strategic Sales: Another business buys your company and then folds operations into theirs.

If you want to read more about popular exit strategies, here is a basic explainer. 

Decide on the Timing of the Sale

Selling a business can take anywhere from 3 months to 2 years from the time of listing to close a deal.

The speed of sale also depends on your industry – evaluate the market for your own business type and whether specialized skills are required to run your business and be realistic about what it will take to find appropriate buyers. The more interest you get from buyers will potentially create a more competitive atmosphere which can work towards your advantage, but you will also need to vet each buyer.

How to speed up the sale timeline

There are a few ways you can influence the speed at which your business sells.

If you can, working to source your own buyers is a good idea. There will still be plenty to do once a buyer is selected, as both sides will need to do their own due diligence and will want to negotiate the terms, but someone who is already familiar with you and your business will let you both hit the ground running.

Try to work with buyers who are pre-qualified for financing to avoid delays. Different types of financing create their own timelines for preparation. Pre-qualified buyers are going to be more motivated to work towards closing the sale and will have the documentation they need in place. 

Working with a broker is also a smart choice if you value a smooth and efficient process. Brokers understand the buying and selling process well and can  actively work to help you find qualified buyers looking for businesses like yours.

Get a Business Valuation

Foundational to any sale is understanding how much your business is worth. Business valuations are also your first opportunity to start the process of gathering documentation that provides specific and accurate data on the following:

• Total Revenue and costs from the last two to three years of operations
• Capital structure (any debts and equity)
• Prospects for future earnings
• Management structure

Documents relevant to business valuations

Business valuations typically require information that can be found on the following documents:

• Tax Returns
• Profit and Loss Statements
• Balance Sheets:
  • Year to year for the last three years
  • Most recent month-end balance sheet
• Year-to-date income statement along with a comparison to last year
• Estimated value of current inventory

Make a note of whatever is currently missing in the documentation, and make a plan to add business operations that will record this data if you need to.

At Bridge we work with business owners to determine their valuation for free. We also work with prospective sellers to get their documents in order ahead of showing off their business to a buyer.. 

Gather professional advisors and build a team

You don’t need to sell your business alone, and frankly, you probably shouldn’t. There are many legal and financial aspects to a sale and attorneys and accounts are prepared to handle the specific issues that will arise. A business broker will know how to prepare and present your business to prospective buyers and will often come in with their own pre-approved network of buyers, greatly speeding up the sale process. 

Address any existing or potential liabilities

Prospective buyers will want to know any liabilities related to your business. This will include tax audits, employee lawsuits (both current and past), insurance disputes, and other issues. 

Your attorney will be your best resource for what needs to be considered and prepared ahead of a sale, but here are a few legal areas to consider as you preparing:

• Contractual obligations: Review your existing employee contracts, service contracts, leases, and other agreements and review how they impact the value of the business. Understand how a transfer of ownership affects each of these, especially if an agreement is not transferable through a sale.
• Intellectual property: Patents, copyrights, and trademarks are all valuable assets that need to be properly protected and registered with appropriate authority so that they don’t become issues in the midst of negotiations.
• Outstanding debts: Any debts, loans, or taxes that are yet to be paid must be accounted for as they will both lower value in the eyes of buyers. Some sale agreements allow for the debt to be taken by the buyer, but this will reduce the amount paid by the buyer. 
• Unresolved legal issues:  If you are in the midst of any lawsuits, work to have them closed before you begin to court a buyer. If you are in the midst of disputes with suppliers, ensure they are resolved and are not brought to court. Hiding litigation is a reliable way to ruin your chances at a sale, especially because buyers will perform their own due diligence that can turn up any ongoing or past litigation. Work with your attorney and be up-front and transparent with buyers.
• Regulatory requirements: The regulatory requirements you will need to fulfill are  largely dependent upon your industry, location, and other factors, and this is another reason to have a good attorney helping you with the sale. Know what documentation you will need to file with tax authorities in your locality, your state, and with the IRS. Some industries will need to allow an environmental audit to be performed before ownership can be transferred.

Organize all technology systems and other security-related info

Accounts, Usernames, and Passwords for all business accounts

Track down all of the usernames, passwords, recovery keys, and other relevant information on these accounts and place them into a password manager like LastPass, 1Pass, or Bitwarden. This allows you to provide the buyer with everything they need to access these accounts through the use of a single account username and password.

Don’t be tempted to present a prospective buyer with a physical notebook with all of your passwords – not only is this insecure, but will also send the wrong message to a buyer and their team.

You may also want to make sure the payment details connected to the accounts contain a single business-related account or card that will stay with the business when you leave. Ensure that your own personal data is removed from these accounts as well, such as names, addresses, phone numbers, payment information, messages, or images.

If you haven’t already, this is also a chance to review the costs of each service you use and ensure this is up-to-date in your accounting of business costs.

Gather together pertinent info related to any website domains you own such as renewal dates and pricing.

Information related to physical security

Compile together any critical information related to your business’s physical security, such as safe combinations, alarm codes, their locations, and instructions for their use into a single, secure location like a password-protected note stored within the password managers noted above.

Prepare the Necessary Documents 

Everything should be ready now for you to compile together all of the operational, financial, and legal documents that you will need to find a buyer, inform them of your business’s value, negotiate the sale, and close the deal. Here is a checklist you can use with your broker to make sure you have everything in order:

Give attention to physical appearance

Buyers will want to tour the premises of your business, so get ready to give them a great first impression. Look into making sensible and affordable cosmetic improvements, organizing office-spaces, cleaning out storage spaces and warehouses, and making operational and cosmetic fixes to equipment. A little can go a long way to building momentum towards receiving an offer and negotiating on a final sale price.

Setting up the sale and working with a broker

Prepare and sign listing agreement with a broker

Your broker will ask you to sign a listing agreement which will determine your working relationship and other terms. Your listing agreement will include some or all of the following:

• Broker Services: Your broker should outline what specific services they will provide in the course of selling the business. 
• Asking Price: Agree on an asking price presented to buyers by the broker and publicly advertised on the listing.

• Exclusivity & Timeframe: Brokers often require sellers to promise not to list their business on other platforms or work with other brokers for a set amount of time. If you are worried about your broker reaching desired results within your intended timeframe, you can include performance benchmarks in the agreement. 
• Commission Structure: Know what the broker expects in commission and compare this against other brokers in your industry and geographic location. A commission is typically charged at a percentage rate. 
• Termination Provisions: Protect your own interests by ensuring there are provisions in place that dictate when the relationship with your broker can and will end, such as lack of performance or breaches of contract.

Compile a “Pre-diligence Checklist” and create a Confidential Information Memorandum (CIM)

Now that you have a listing agreement with a broker, you finally get to work on putting your business in front of buyers. Your broker with have their own standard “pre-diligence checklist” which will cover many of the items you will have already completed, if you have followed this checklist in order. Your broker may want you to add detail to what you already have so that they can successfully make their case to buyers.

Pre-diligence checklists will include providing the broker with the following:

After your broker is confident in the documentation you have, you will create a Confidential Information Memorandum to aid in the selling process. These documents can be up to 50 pages long, and covers your company’s history, the good/services provided, an organizational chart, brand details, locations, opportunities for growth, etc. Note that in the pre-diligence checklist a non-disclosure agreement is listed so that it can keep buyers from learning sensitive information and then walk away from the sale.

Closing the deal

Once you have selected a buyer, it is time to negotiate. Typically the buyer’s attorney will write up a Letter of Intent (LoI) which shows a commitment to negotiate the transaction. Nothing in the LoI is legally binding, but it will serve as a starting point for negotiations.

From there your attorney and broker will work together to draft a Definitive Purchase Agreement with the buyer’s team to finalize every aspect of the sale. Aside from the obvious negotiation over final sale price, expect a closing deal to also include: 

• Non-Compete Agreements: You will often be expected to sign a non-compete agreement along with the sale to keep you from immediately turning around and building a business that challenges the buyers.
• Post-Sale Training Arrangements: typically a 6 month- to year-long training period is promised to the buyer so that they can ensure a smooth transition into ownership. The Small Business Association requires training periods by law if the purchase was funded through them.

Close the sale

Once a sale has been agreed upon, the final sales agreement will be written up by your and your buyer’s attorneys. A final closing meeting will often occur, and once everything is signed then you can begin the process of transferring payroll, agreements with suppliers and vendors, and other assets over to the new owner.

Set up a meeting with your employees to inform them of the sale

This can occur earlier in the process, but rely on trusted advisors and business partners to determine the best time to speak with your employees. This is your chance to help employees understand what will occur with the transition to new ownership and address concerns they may have.

Ensuring your employees, especially those with key skills and knowledge of business operations, are comfortable with the transition is a critical aspect to ensuring the future success of the business. Consider providing incentive plans in the form of  profit-sharing plans or bonuses to those you know are most critical to operations. Finding ways to have the sale be a benefit not just for the seller and buyer but also for current employees will go a long way towards a successful transition. 

As with everything in this list, your team of advisors and broker will be a great resource on how to execute all of this. 

Dissolution of the legal business entity

You will need to dissolve the legal business entity that exists under your name. This process differs depending on how the business was formed, though it typically involves formally dissolving the entity by meeting with any business partners or family members involved, contacting the IRS with appropriate documentation and to pay any necessary taxes, and providing your state government with articles of dissolution. Here again your advisory team and broker will be able to guide you through how to do this properly.

Bridge can do the heavy lifting!

You do not need to complete this checklist alone. Bridge Financial works directly with business owners to prepare for a sale by providing consultations with advisors, business valuations, business optimization advice, and brokership services. 

We already have a network of buyers who we have helped work through their own pre-diligence process so that they are prepared to engage with prospective sellers and put serious offers on the table. 

Schedule a free consultation with a Bridge advisor to discover a future for you and your business that you may not have known existed.