Selling a Business: The Documentation
Are you selling a business? As either the seller or the broker? If so, you’ve got to make sure that your documentation act is together.
Two Types of Documentation
There are really two categories of documentation that have to be considered: pre-marketing documentation – what is needed for the valuation – and post-marketing documentation – what is needed for due diligence. If you’re working with a seller, it’s a good idea to assign them the task of collecting all this documentation up front._____________________________________________________________________________
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches how to value and sell businesses.
Become a Professional Business Broker…
If you’ve taken our course, you know that one of the steps to successfully sell a business is the preparation of an Offering Memorandum, or “Book on the Business”. This document should be at a level of thoroughness so that a buyer would have almost zero questions – and all a buyer would have to do is confirm what the Offering Memorandum contains. This is when the due diligence documentation comes to the fore. But before you can prepare an Offering Memorandum, you have to value the business and then establish a target price. You can’t do any of that without the valuation documentation. So, let’s look at that firstValuation Documentation
When selling a business, we first have to determine what that business is worth. Many sellers have an “exaggerated opinion” (to say the least!) of the value of their business. And many of these sellers will be well and truly disappointed when they get the truth. But unless the broker has nothing better to do with their time, they are unlikely to take a listing without doing a valuation. They would, after all, like to believe there’s a real chance of finding a buyer. Properly pricing the business – that is, basing the price on the value – is the surest way to achieve this. The basic documentation for determining value is pretty easy to identify:- Profit and loss statements for the last three to five years and year-to-date.
- Tax returns for the same period
- Balance sheet
- Inventory
- Description of work-in-process (if appropriate)
Due Diligence Documentation
When selling a business, the documentation needed for the buyer’s due diligence is much more comprehensive. Remember, if the Offering Memorandum is thorough, the buyer will have all the information they need but will want to confirm all the information it contains. The financial information should be confirmed by the valuation documentation. But what about all the other information?We’ve launched a coaching program specifically tailored to Realtors that want to sell businesses and to novice business brokers.
If you’d like to learn more, email me at joe@WorldwideBusinessBlog.com

(And, incidentally, a professional business broker will ask a seller about the level of compliance with vendors’ terms because if the business has been assessed late fees or interest as a result of its non-compliance, those fees would be treated as discretionary during the valuation process – which will enhance the value of the business.)
The Bottom Line
When selling a business, there is a ton of information and documentation that has to be collected and categorized – and the larger or more complex the business, the more of this documentation will be needed. But advising the seller about the need for extensive documentation will have two significant effects on our work as brokers. First, if will make your efforts easier and more organized, a condition that will be obvious to the BUYER – and that will redound to your benefit in the future from referrals.
Joe

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com