Selling your family business can be difficult both emotionally and practically. As an entrepreneur, you’ve put your life’s work into building a successful business, and the idea of selling can be hard to swallow.
Alongside your mixed feelings, you need to make sure everything is in order financially and operationally if you want the sale to go smoothly. While selling your small business is no easy feat, there are logistical ways to make it easier and avoid some friction.
It just takes a little time to get your business ready for a new owner and get organized before speaking to potential buyers.
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The key to selling your family business is transparency with the buyers
The key to working with potential small business buyers is to be as transparent as possible. You will come with a list of questions and expectations, and you want to be ready. Showing potential buyers the most complete and accurate picture of your business is the only way to set things on track.
Not sure what potential small business buyers will be looking for? We’ve brought you a list of 14 things buyers expect (and should have ready) when selling your family business.
At first glance it might seem like a lot. But remember, if you don’t, you probably have most of them Everyone – of these things already on file. If you’ve run a well organized business over the years, all you have to do is gather everything together and make sure it’s up to date.
Let’s dive in.
First things first: buyers will likely want to know why the business is for sale. Sometimes sellers are just willing to step down, and other times they want to get out of business for some other reason. Prepare yourself for this question with an honest and direct answer.
Before you start talking to potential buyers, you should have the following documents and information ready.
1. Business Plan
Buyers want an insider’s perspective of your business. Your business plan alerts buyers to your business goals and goals from an operational, financial, and marketing perspective. Your business plan serves as a road map—showing buyers where the business came from and where it’s going.
Make sure your business plan includes:
- Company description (including products and services)
- market analysis
- marketing strategy
- Financial Forecasts
2. Annual Accounts
It’s important to have financial reports ready, as buyers will usually ask to see them. Ideally, you should have all of these documents reviewed by a financial professional. Buyers usually have their own accountants to help them verify these documents.
Prepare for the following:
- tax returns
- balance sheets
- cash flow statements
- accounts obtainable
- Accounts Payable
- credit history
- Debt Disclosure Statements
- advertising costs
3. Business Licenses and Permissions
Buyers should ensure that all permits and licenses they hold are valid and current. License and permit requirements depend on your location and the nature of your business.
4. Organizational Paperwork
Your organizational records show proof of registration and show buyers the legal status of your business. Depending on how your company is classified, this could be the Articles of Incorporation or the Articles of Incorporation.
5. Clearance Certificate
A certificate of non-objection confirms that your company complies with government regulations. If you don’t already have one, check with your state about how to get one.
Buyers may ask about current agreements your company has with customers, clients, or vendors. These allow them to understand your customer base and see where the company’s revenue is coming from.
7. Rental Agreements
If your company rents something – such as B. facilities, land or equipment – potential buyers can ask for the details. They need to know if they can get these agreements on their behalf (if they want to keep leasing those assets) or if they need to get new leases.
8. Organization Chart
An organization chart illustrates the structure of your company. It shows the roles of your employees and how they relate to each other. It can even include information such as management details, compensation, and benefits.
9. Employee Contracts
If your org chart doesn’t include information about your employees’ compensation and benefits, their contracts will. Employee contracts allow buyers to see the details of each employee’s job role within the company. Whether these details are in your org chart or in your employee contracts, make sure you make them available for potential buyers to review.
10. User Manual
Your operations manual describes how your business runs. Buyers should be able to get a full understanding of how your business works by reading it. The operations manual includes things like business processes, employee roles and policies, policies, and contingency plans.
11. Inventory List
It’s common for buyers to review a full inventory of all equipment and other physical assets that will accompany the sale of your business. Knowing these details can help both of you negotiate a fair price, and it can help the buyer determine what additional equipment he or she may need to invest in.
12. Trademark and Intellectual Property
Smart shoppers may want to see more than just your company’s physical assets. They also want to see other intangible assets like intellectual property, brand assets, and customer lists.
13. Business Insurance Policy
Buyers will likely want to know that your business is protected, so have a copy of your business insurance policy ready.
14. Letter of Intent
If you’re interested in a specific buyer (and they’re serious about buying your business), consider writing a Letter of Intent (LOI). This document contains the details of an agreed price, terms and conditions and what is included in the sale.
Being prepared makes the whole process smoother
When you have all the right documents and information at hand, selling your family business becomes so much easier. But if you’ve been disorganized over the years, gathering that information may take more time than you’d like.
Whether you’re ready to launch your business tomorrow or planning to run your business for decades to come, it’s never a bad time to get these things in order. Do yourself a favor – get started today.
The content of this material is provided for general information only and is not intended to provide specific advice or recommendations to any individual.
This article was written by and represents our contributing consultant, not the Kiplinger editorial board. You can view advisor filings with the SEC (opens in new tab) or with FINRA (opens in new tab).