As an entrepreneur, selling a business is one of the most significant financial transactions you’ll ever be involved in. Because of that, it’s way more complicated than you might imagine. All sorts of questions and dilemmas will arise throughout the process. Here I will address many of the questions I’ve been asked in my consulting and presentation sessions.

What do I need to do before I put my business up for sale?

Remember the last time you sold your house? You made every room presentable, replaced the fixtures, upped the curb appeal and repaired whatever was needed to make a favorable impression on potential buyers. It’s no different with your business. You must examine each department closely to ensure the processes are streamlined – redundant and overlapping tasks must be eliminated. In addition, be sure to resolve pending legal issues, pay off business debts and get your financial books in order.

Should I hire a broker?

If you needed a critical and complex medical procedure, would you try to perform it yourself or hire a pharmacist? Of course not. So why would you consider selling your business on your own or relying solely on an accountant or attorney to maximize your gains? A capable broker brings years of experience and can handle negotiations effectively. They guide you and keep you calm and on track when negotiations take an unexpected turn, as they are bound to through this lengthy sale process.

Who else should I enlist for help?

Besides an experienced broker, other team members can and should include an attorney who specializes in M&A (remember, most buyers are larger corporations with an entire team of legal professionals looking out for their interests), a CPA/accountant, a tax attorney and a financial/wealth advisor.

What documents will the prospective buyer ask for?

They may request various business-related documents, but the six essential financial documents you should prepare are:

• Income statement (year-to-date and previous year’s)
• Balance sheet (year-to-date and previous year’s)
• Cash flow statements (year-to-date and previous year’s)
• Tax returns for the last three years
• Summary book of business
• Outstanding accounts receivable and payable

As the sales process advances and mutual interest in the deal grows, they may request additional documents, including:

• A list of top clients (with percentages)
• Vertical concentration details
• A list of top suppliers (with percentages)
• Contracts with clients and suppliers
• Lease agreements
• Employment contracts
• Patents and intellectual property

What to say when the buyer asks the inevitable question, “Why do you want to sell your business?”

As you engage in conversations with a potential buyer, this is the key question, and you must provide a clear, concise and believable answer. Why is preparing for this question so important? One: Most buyers will want you to stay onboard for some time (typically one to three years). Your answer helps them understand how likely and willing you are to stay on. Two: They want to get a feel for your urgency in exiting.

I’m not asking you to be untrue, but you don’t want to give the impression that you’re desperate. If the buyer knows that your back is against the wall – due to poor health, tragedy in the family, legal issues, partnership conflicts, declining sales or a deadline by which you must sell – it doesn’t incentivize them to offer you a good or even a fair value for your enterprise.

If you’re relatively young, in good health and the business is on an upswing with a promising future, some possible reasons might be:

• To diversify into newer markets – verticals, sectors or geographic locations
• Spending quality time with aging parents or growing children
• Moving on to other business ventures
• To accelerate business growth

How can I market my business to attract the best buyer?

Even the most successful businesses will not attract the best offers if the business isn’t marketed effectively to the right prospects. Effective marketing channels to get the word out include social media, business-for-sale websites, newspapers, trade journals and reaching out to larger customers or suppliers. As I’ve mentioned before in my previous articles and this column as well, I prefer hiring a knowledgeable, experienced and personable industry business broker/advisor. Before marketing your business, this professional will guide you to ensure the company is “market ready”; in other words, getting your business records and operations in order. They will craft a marketing message, create a confidential “business overview presentation” and reach out to qualified, serious and able buyers. Upon signing a binding nondisclosure agreement and letter of intent (LOI), the due diligence process starts, in which you’re expected to share your financial and management details.

How should I share the news with my staff?

Your team, who has been an integral part of your business success, deserves to know the truth about the deal and the impact it would have on their livelihoods.

• When: Getting the employees involved too early in the game can only add unnecessary stress and uncertainties. The right time is usually after receiving the LOI. Deals can and do fall through. You will need the key senior-level staff to be on your side from the get-go to assist in the sale process. All staff must know before the potential buyer shows up at your door, however.
• What: Provide a truthful answer that you want to forge a strategic partnership with a financially stronger partner to move the business to newer heights. Share how hard you have worked to find “the right fit” in the new partner. If they see the partnership as added job security and a better opportunity rather than a threat, they are more likely to contribute to a positive result before, during and after the closing. Explain what would stay the same (or may even get better): location, employee roles, and compensation and benefits.
• How: It’s better to meet with the team individually and then in a group setting. Meeting individually gives them a chance to ask questions without any hesitation and have their fears alleviated. Similarly, arrange meetings with the buyer, both separately and in a group.

How many years do I agree to stay onboard after the sale?

Some buyers want you to stay on for three to five years. Do you really want to stay on that long? I didn’t. It all depends on your situation and your agreement with the buyer. You could choose to work as a consultant, a full-time or part-time employee, or continue collaborating with key customers. Clearly communicate your desire to stay, specifying the duration and capacity in which you wish to contribute.

I hope I addressed some of your most pressing questions. If you have any other inquiries, feel free to email me at agconsultingusa@gmail.com. Selling your business is undoubtedly a challenging endeavor, but the hard work and due diligence you invest will lead to a successful sale.