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How to Prep Vital Documents Before a Company Sale

Potential buyers for your business want to see the numbers. They want to see how profitable your business can be for them, what they should expect if they buy your business, and what your business includes. Otherwise, they won’t be interested in it. To show potential buyers what you have to offer, you’ll need to prepare a number of different documents you can share with them.

What Documents are Vital for a Company Sale?

You’ll need a variety of different documents to prepare for the company sale. These include documents describing the business, legal documents, financial statements, inventory lists and more. Make sure you have these documents as well as any other documents that might be useful for the buyer on hand before you start looking for a buyer.

  • Information About the Business – You’ll need basic information about your business to get buyers interested and wanting to learn more about what your company offers. This should include photos of your business, opportunities for improvement with profit projections, descriptions of your products or services and prices, your business plan, your marketing plan with samples, and your business procedures manual.
  • Legal Documents – Some legal documents will be needed before entering any agreement with a buyer, while some are going to be current legal documents for your business. Documents needed to prepare to sell the business include a non-disclosure agreement, a financial statement the buyer completes, an offer-to-purchase agreement, and information about seller financing. Other legal documents to have on hand include patent, trademark or other intellectual property documents and business formation documents.
  • Financial Statements – Potential buyers want to see your business is making money and that they can make money from the business as well, so financial documents are especially important. These include statements for recent earnings as well as tax documents. You’ll want to have on hand financial statements including the present year as well as the past 3 years, statements showing cash flow, description of financial trends, aging reports for accounts payable and receivables, and your tax documents for the past 2 to 3 years.
  • Inventory and Assets – What does the buyer get if they purchase your business? You’ll want to provide an inventory list detailing the value of all inventory, and a list of what they’ll get with the business, like the fixtures and equipment, with the value listed. All of your assets should be listed to ensure the buyer knows exactly what they’ll get if they purchase your business.
  • Contracts – Your buyer will need to know about any contracts, loan agreements, or liens they will need to handle if they purchase your business. This includes contracts for suppliers and distributors, a list of current clients and contracts for major clients, any outstanding loan agreements or liens, the building lease if applicable, any equipment leases, and any maintenance agreements.
  • Employee Information – Your employees will likely stay with the business through the change of ownership, so the buyer will need to know about them. With your documents, include a list of employees with hiring dates and salaries, any employment agreements, and the employment policy manual.
  • Certifications – You may have certifications, licenses, and other documents your potential buyer will need to be aware of. They’ll want to find out about business licenses and certifications, any professional certificates you might need, and any insurance policies they’ll need to keep for the business.
  • Other Unique Documents – It’s possible you’ll have other types of documents not listed here that are vital for your business. Keep these with your documents to have them ready to show potential buyers.

Assemble Documents Early to Prep for Sale

Go ahead and start assembling all the documents today to ensure everything is ready when you start to look for a buyer. You’ll want to have everything ready long before a potential buyer becomes interested in your business. They’ll want to see these documents right away to determine if they’re interested. If you don’t have everything organized and ready, the buyer might decide they don’t want to purchase your business.

How to Organize Physical Documents Before the Sale

Depending on your business, there may be quite a few documents you have hard copies of on hand. Physical documents should all be organized in a box, separated into files by the type of document. All files should be labeled so you can easily see what’s in the file and so your buyer can look through everything. You should keep informative documents about your business at the front so they can look through these first and have all other documents organized behind these so they can see what your business offers.

How to Organize Sensitive Digital Documents

Many businesses today keep their vital information stored digitally instead of having a hard copy on hand. It’s important to make sure all of the data is stored carefully so it cannot be accessed by anyone without authorization. This is crucial for documents that include sensitive information, such as legal documents or information about trademarks and patents.

For these types of documents, use a virtual data room like Docurex. A virtual data room allows you to store and organize documents with sensitive information, yet easily provide access to potential buyers who will need the information to determine if they want to purchase your business. The data room should be highly secure to ensure your documents are protected and able to be shared with only potential buyers you want to have access to them.

If you’ve made the decision to sell your business, start working on the accumulation of essential documents today so you’re well prepared when you do have a buyer who is interested. This ensures you’ll have everything you need on hand and easily accessible for them. Whether you choose to store hard copies or you’d prefer the security of a virtual data room, organizing documents today gives you the peace of mind you’ll be ready when a buyer does choose to learn more about your business and what it can offer them.

due diligence steps

If you are Buying a Company are you taking these Due Diligence Steps?

If you plan to buy a company, the due diligence process is probably the most important aspect of the entire transaction.

Due diligence research and analysis ensures a buyer is confident in the true value of the company and how this relates to the price of the company for sale.

Below are the major elements that should be studied during the due diligence process:

Company capitalization

How much is the company worth in today’s market place? Are shares publicly available and if so, which stock exchange do they trade on?

Revenue, Profit and Margin

What are the company’s figures for at least the last three years? Get information from earlier years if possible.

Has revenue grown year on year? Are profits steady or sporadic? Are profit margins consistent with the industry norm? These are just some of the questions which will be asked during the due diligence process.

Industries and Competition

In what industry (or industries) does the company compete? What are the major trends in these industries? Are there threats or opportunities in these industries arising from new regulations, legal class actions, new technology or new competition?

What is the market position (Leader? Follower?) of the company and how do they compare to their major competitors? What are the dominant business models used by the competition and how well does the company execute this model?

Valuation Multiples

Given the price being asked for the company, what is the valuation multiple and how does it compare to the industry average? If there is a large difference between the price being asked and the valuation multiple of the competition, what is the reason? Is it justified?

Ownership and Management

Who actually owns the company? Do the founders still hold stock? Is it a family run business? What is the percentage of shares held by founders and current management? This helps show how much they have invested in the success of the company.

Examination of Balance Sheet

Use a financial expert to help analyse the balance sheet. Understand the assets, liabilities, cash flow position, debt levels and other key indicators to the financial health of the company.

Stock History, Options and Dilution

How has the stock price performed over the last 10 years? How does the market perceive the company and how is this reflected in the stock price?

Do current stock owners have options to sell stock? Is the company committed to issuing more stock in the near future?

Risks to the Company

Are there any specific risks, legal cases, regulatory concerns or competition issues that threaten the company? Consider all aspects of the business.

 

Something to remember as part of due diligence is that in the first instance it is simply an information gathering exercise and not one that requires any judgements to be made. Keep an objective mind to the information collected and undertake a full analysis when you have collected all the data you need.

Completing a full due diligence process will ensure you have the best possible understanding of a company’s potential.

We recommend you download a free due diligence checklist from www.due-diligence-checklist.net to ensure you have asked all the questions above (and more).