The Ultimate Checklist for Selling a Business
There are many business owners out there lost in a haze of confusion as they’re selling their businesses because they don’t have a clear guide with checkpoints and steps to follow.
It’s vital to understand the business-selling process because missing any steps can result in a dragged-out sale, your business being sold for less than what it’s worth, or in the worst-case scenario, dealing with a phony buyer who doesn’t uphold the sales agreement.
The good news is, whether you decide to sell your business privately or through a broker, there is a uniform process to follow, with boxes to tick along the way.
To see how the process of selling is going to play out for you—how you will tick those boxes—you first need to consider your current situation.
Are You Ready to Sell?
To answer this question, there are two things to look at:
Why You Want to Sell
The most common reasons business owners sell their businesses that we hear are to buy a home, the seller doesn’t have the capital and resources to scale the business, to focus on another business or other businesses, or because of burnout.
When thinking about why you want to sell your business, it’s important to understand your ultimate goal with the sale. Dig deep into your reasoning.
For example, if the big cash reward is a big motivation for you, why is that? What would you like to do with the cash?
Knowing this will help you decide how to approach each step in the process.
Timing the Sale
Once you know your ultimate goal, you will know when the best time to sell is. For example, if you’re looking at a house you want to purchase that’s on the market, then it’s probably best to opt for a quick sale.
However, it’s also good to have a sense of the current state of the online business mergers and acquisitions market.
Right now, the market has never been better for business owners to sell their businesses. The demand levels and capital available in the market are at all time highs.
The significance of knowing why and when you want to sell will become apparent as we start exploring how to sell.
If you want the full checklist, click the button above. Or, if you already have the checklist, set up a call with our Seller Advisors for advice tailored to your business. Otherwise, keep reading as we break down the various areas you should focus on as a seller.
Step 1: Get Initial Expert Guidance
As with any big transaction, it’s necessary to get expert advice before you start making moves.
Get an initial business valuation from a professional—a ballpark figure that allows you to set the right expectations for what the true value of your business will be. It’s vital when selling your business to set the right asking price.
This valuation doesn’t have to be as detailed as the process we take to value a business when listing it for sale. One way to get a professional ballpark figure is to use our valuation tool, which is built on algorithms that use real data from the sales of hundreds of businesses of sizes from five to eight figures.
Assemble a Team of Professional Advisors
As you can imagine, there are certain professionals you need to work with to make the sale of your business safe and legitimate regarding areas such as liabilities.
The core professionals you need:
- ☐ A reputable business broker to connect you with buyers they trust (optional but highly recommended).
- ☐ An accountant to help with finances and tax returns after the sale.
- ☐ A lawyer for the legal side of the deal.
The next step is where these professionals really help in the process.
Step 2: Prepare Your Documents and Finances for Smooth Due Diligence
Due diligence involves the buyer investigating your business and you investigating the buyer so that both of you are certain this will be the right deal. Understanding how buyers carry out due diligence and what they look at will help you prepare your business for the sale.
Your accountant can help create and prepare these documents. At a minimum, you’ll need to prepare the following financial information:
- ☐ Profit and loss statement, ideally for the previous three years. Highlight and explain any dips or spikes in earnings.
- ☐ Add-backs—these are expenses not necessary for the daily operation of your business. The aim is to clarify the seller’s discretionary earnings.
- ☐ Inventory value, including inventory you have in storage and shipping.
- ☐ Lines of credit, including the one you have with your manufacturer.
- ☐ Cost of goods sold.
- ☐ Software costs.
- ☐ Accounts receivable.
- ☐ Accounting method—accrual or cash accounting.
- ☐ Agency retainers.
Also be sure to highlight any activities that affected the business, such as liquidating a product or stopping a marketing campaign.
The lawyer you hire can help advise on or prepare these assets:
- ☐ Employee contracts—staffing list breakdown, employee salaries, and contractor payments.
- ☐ Contracts—such as contracts with manufacturers, 3PL warehouses, and affiliates.
- ☐ Intellectual property, including patents, trademarks, and copyright documentation.
- ☐ Asset purchase agreement—this should be written up and reviewed by your legal representative.
- ☐ Confidentiality agreement—this will help protect your business’ data from being used outside of the business sales process.
- ☐ Sale declaration document—all owners of your business should sign their intent to sell the business.
All of the tax documentation a new owner will need to legitimately run the business. This is especially important for EU-based businesses with respect to VAT.
These are your business’ standard operating procedures (SOPs), which include the following:
- ☐ Operator manual
- ☐ Organization chart
- ☐ Policies
- ☐ Procedures
Step 3: Streamline Your Business for a Higher Valuation
To fully prepare your business for a smooth sale and give you leverage to demand a higher purchase price, you can take some actions to make your business more profitable.
- ☐ Sell off redundant assets, including unused software and non-selling inventory.
- ☐ Renegotiate long-standing contracts to lock in discounts.
- ☐ Turn off marketing experiments.
- ☐ Don’t launch new products, services, or major initiatives during the sales process.
- ☐ Review all software and other recurring expenses to see if they can be eliminated.
- ☐ Make suppliers, logistics companies, and 3PL warehouses compete for your business on price.
- ☐ Redesign and reduce product packaging design to lower storage and shipping fees.
- ☐ Test your product pricing.
- ☐ Split test product listing pages.
Step 4: Create a Brand Overview
Providing an overview of your brand will help the buyer clearly understand what your business is, what it does, and how it generates cash flow. This can also include your business plan if you have one.
This information will allow prospective buyers to spot the opportunities for them as investors and give them a better understanding of the value of the business.
Outline the Brand’s Unique Selling Points
Help the buyer understand what your business offers and how you envision its future. Include testimonials, along with your business’ strengths and growth opportunities.
Provide a Traffic Breakdown
- ☐ Traffic analytics with explanations of spikes and dips.
- ☐ Overall customer acquisition cost (CAC).
- ☐ Revenue by channel with individual CACs.
- ☐ Outlined strategies behind each channel.
List the Brand’s Assets
- ☐ Social media accounts with followings and engagement levels.
- ☐ Email list: its size, the included email accounts, and the marketing strategy and automations.
- ☐ Reviews and brand mentions—to show how much real estate your brand has in the niche.
Step 5: Prepare to Work with Potential Buyers
After you’ve established how you’re going to find your ideal buyer, you can focus on how you’re going to work with them.
There are a number of questions you should ask yourself when you have a buyer contact:
- Who is your perfect buyer?
- Do you have a way to filter out tire kickers and time wasters?
- Do they have the liquidity to purchase?
- Do they have a track record of acquiring businesses like yours?
- What are their plans for your business?
Preparing for Buyer Requests
The work you’ve carried out in the previous steps will have prepared you well, mainly because you’ll have clarity regarding the following:
- Why you’re selling—be honest about this. If you’re burned out, say so. Your target buyer will have more resources and capital at their disposal, so burnout won’t be as much of a concern for them.
- Who your customers are and what the total addressable market is—the buyer will need to know whether the market is a good fit for them.
- Future trends—the buyer will want to see how they can generate a return on their investment.
- Business opportunities—list everything you have put in place for future growth.
- How and why negative impacts on your business occurred—you’ll have a chance to explain these events and put a buyer’s mind at ease.
- Brand overview—put all this information in a doc so that you can give potential buyers a high-level overview of your business.
Step 6: Prepare Your Business for Migration to a New Owner
All of your business’ assets will need to be transferred to the new owner, including the following:
- ☐ Inventory of equipment, including business equipment and inventory broken down by SKU.
- ☐ Employees—it’s important for the buyer to know whether the employees are willing to work with the new owner and if any policies will change.
- ☐ Merchant order accounts—make sure these are transferable. For example, you’re not able to transfer a PayPal business account.
- ☐ Account credentials—all of your logins for software and accounts associated with the business.
Overall, the process of transferring businesses from entrepreneurs to buyers differs depending on the business model. For example, migrating a content site will be very different from migrating an Amazon FBA business, so make sure you understand how this process will work for your business model.
It’s helpful for the buyer taking over your business to have your support in the transition period, until they get acquainted with your business. This is where you decide how you’re going to support the buyer after the sale.
Want a downloadable checklist you can print off and follow as you prepare to sell your business? Click here for your free copy. If you’ve already got your checklist, set up a free call with our Seller Advisors for an expert exit plan.
Decide What You Want to Do After the Sale
Once the sale has been made, you can focus on how you’re going to achieve your goal!
One thing you can do with your large sum of capital is invest in another business. Then you can scale it and sell it, initiating an asset flywheel of perpetual wealth.
By now, it might have become apparent to you that the process of selling your business is an arduous one.
If you’re feeling overwhelmed, we can give you personalized advice, distill this information for you, and even help you create an exit strategy. Call one of our expert business advisors today on a free exit planning call and see how you can get the highest possible sale price for your business.