I spoke to a client recently who asked me to look at his company financials and answer some questions. The MSP has a specialty niche in healthcare IT. We reviewed the financial statements together and I offered some tips. The owner is in his mid-50s and not looking to retire today, but wants to think about his options in the coming years. He reached out to understand the steps he should take now to prepare his business for life without him.
When selling your business, make sure your business is something that you would buy. If you think about the buyer’s needs more than your own needs as a seller, you will have a better chance of attracting the right buyer. For instance, most buyers will not want to buy a company that regularly reports a loss on a tax return or financial statement. Be sure to show at least three years of attractive profits. If you cannot do this, have a document ready to explain the portion of the business that causes the loss that will not transfer to the new owner. Examples of this might be Owner’s salary, an auto lease for a car not included in the sale, or a contract with a former client that went south.
Once you have a business that you would buy, the next step is to get the documents in order. These will be documents the buyer will ask for. If you have them ready when asked for them, negotiations will go much smoother, and you will show the buyer you have a serious business and you are prepared to show your hand.
Over the next few articles, I will address in detail each document in the groups below. What the documents are and why they are important to a prospective buyer. Prepare yourself and your company to be completely transparent during the sale process. You would not purchase a business without knowing all the details, so you cannot expect anyone else to either.
A general overview of documents to gather:
- Corporate Organization – Review your corporate documents and make sure they are orderly and complete. Incorporation documents, by-laws, current filings and business licenses
- Business overview – create a timeline of the history of the business. Who founded the company, history of office locations, any acquisitions over the years, etc.
- Customers and marketing – What is your niche? Who are your top 10 customers and what industry are they in? What products and services do you sell the most of?
- Operations and SOP documents
- Financials – 3 years of financial statements and tax returns – do they match? Why or why not?
- Human Resources – what employees are paid, what benefits they receive, and performance stats.
The lists can get long and seem intimidating at first, but if you start now and organize one section at a time, the exit process will be much smoother. Chances are you already have most of the items needed, all that is left is to organize them. Get a three-ring notebook and some dividers or create a folder on your server and place PDFs in the folder. We will take it one step at a time together.