Horizon M&A Advisors

The Ultimate Checklist for Selling a Business: What Every Owner Needs to Know

Introduction

Selling a business is one of the major milestones that will help shape your financial future. The process, however, is very complex and has the potential for pitfalls at many turns. A well-structured checklist becomes indispensable in this process. A good checklist will streamline the selling process, making sure that all important steps are taken and nothing falls through the cracks.

In the following blog, we will guide you through the ultimate selling business checklist, designed to help you through the essential steps to sell a business. Whether you are just starting to plan your exit strategy or are already in the midst of the selling process, this guide will be a source of great clarity and direction.

Why Having a Checklist Makes Selling Much Simpler

A checklist is a roadmap of clear steps and timelines to be followed. It helps you keep track, reduces your stress levels, and increases the chances of a successful sale. It breaks down the process into manageable tasks, which helps ensure nothing slips through the cracks, enabling you to focus on maximizing the value of your business and achieving the best deal possible.

Fact: A prepared business is a more attractive sell, which may reduce the closing time by up to 50%.

The Ultimate Checklist for Selling a Business: What Every Owner Needs to Know

Checklist Sections

Step 1: Get Your Finances in Order

The selling business checklist first requires getting your financial house in order. Prospective buyers will examine your financial records, so it is necessary to present an accurate and transparent picture of the financial health of your business. After the buyer examines your financial records, the buyer’s independent audit firm will conduct a very extensive examination of the financial records.  Finally, if both of those audits pass, the bank underwriters who are financing the sale will conduct due diligence, too.  One way to be sure to pass all these audits is audit preparation.  This involves hiring an independent accounting firm (not your existing CPA) to check the basic processes and records in your financial records – just like the buyer and his auditors will do.  Since many transactions fail due to due diligence audits, if you only want to sell your business once it is in your interest to ensure that your financial records will pass all the audits before you go to market.  Sell in is an arduous and time-consuming process, so preparation will help you complete the sale the first time around.

Some of the key tasks involved are:

  • Organize income statements, balance sheets, and cash flow statements for the past three to five years.
  • Ensure all tax returns are up-to-date and filed correctly.
  • Review and clean up your accounting records to eliminate any inconsistencies.

Fact: According to industry data, businesses with well-organized financials sell 30% faster than those without.

Step 2: Assess Your Business Value

Understanding the value of your business is key to building real expectation and effective negotiations. A proper business valuation will allow you to determine an asking price that is not too high for others to pay.

Some of the key tasks involved are:

  • Hire an appraiser or ask your M&A Advisor for a Broker’s Opinion of Value report.
  • Take into consideration industry trends, market conditions, your company’s unique strengths.
  • Examine past performance and future growth prospects.
  • For more information about valuing your business, go to our earlier post, “How to Determine Your Business Value.
  • Correct controllable risks such as customer concentration, key person risk, vendor concentration, obsolete equipment, deferred facility maintenance, etc.

Step 3: Establish Confidentiality Agreements

While showing sensitive business information to possible buyers, make sure your M&A advisors has a confidentiality agreement. These agreements are also referred to as NDAs, (Non-Disclosure Agreements) meaning that proprietary information won’t be exposed to anyone other than prospective acquirers, their advisors, and their bankers.

Some of the key tasks involved are:

  • Prepare a standard template of an NDA or, better yet, get a legal professional to prepare one for you.
  • Ensure all potential buyers sign the NDA before accessing detailed business information.
  • Maintain a copy of all signed agreements for future reference.
  • Your M&A advisor team should have a virtual data room to manage all documents securely.  The advisory team will have a checklist of documents to compile before an offer has been accepted in order to facilitate the due diligence process.

Fact: More than 90% of successful M&A transactions involve well-crafted confidentiality agreements to safeguard sensitive information.

Step 4: Identify the Right Advisor

The process of selling a business is intricate and complex. A good M&A advisor can be a huge difference-maker in ensuring a successful outcome.

Some of the key tasks involved are:

  • Research and choose an experienced M&A advisor who knows your industry.
  • Horizon M&A Advisors, for example, provides end-to-end support during the selling process, from valuation to closing.
  • Use the advisor’s network to connect with potential buyers and negotiate the best terms.


Why Choose Horizon M&A Advisors:

  • Extensive experience in various industries and business sizes.
  • Proven success in completed transactions.
  • Personalized service tailored to your unique needs.


Step 5: Prepare for Due Diligence

Due diligence is a critical phase where potential buyers will examine your business. Being prepared can speed up the process and give confidence to the buyers.

Some of the key tasks involved are:

  • Compile all necessary documentation, including financial records, contracts, customer information, and legal documents.
  • Address any potential red flags or discrepancies beforehand to avoid surprises.
  • Be transparent and responsive to buyer inquiries.

Step 6: Develop a Marketing Strategy

The right buyers will be attracted only by a strategic approach. A well-designed marketing strategy may display the best strength of your business and attract more attention.

Some of the key tasks involved are:

  • Creating a compelling information memorandum that communicates the value proposition for your business
  • Using various channels like online listings, industry networks, and your advisor’s connectivity to reach potential buyers
  • Control of confidentiality through the right flow of information and only serious buyers would get access to sensitive information.

Step 7: Negotiate and Close the Deal

Negotiate terms and close the deal. At this stage, you must pay attention to the details so that you get the best terms.

The biggest task, most difficult and time-consuming, is due diligence.  Expect your staff to spend dozens if not hundreds of hours, produce hundreds of documents and reports, have frequent meetings to answer questions from the auditors after they examine the documents and a significant amount of your time discussing details with the buyers and their auditors.  Due diligence includes everything about the business:  sales, marketing, finance & accounting, human resources, equipment, facilities, premises lease, legal documents, corporate organization records, business plans, vehicles. Inventory, engineering, intellectual property, and more.  It is in your best interest to withhold sensitive information until the end of the process.  Examples of sensitive information include customer names, employee names and personal information, pricing methods, pipeline of new business prospects, etc.

Some of the key tasks involved are:

  • Work with your advisor to review offers and negotiate terms that are consistent with your goals.
  • Final due diligence to confirm the buyer’s financial capability and commitment.
  • Finalize the purchase agreement and complete all the legal and financial procedures.

Fact: Companies that have professional negotiation support close at 15% higher sale prices than those who do not.

The Ultimate Checklist for Selling a Business: What Every Owner Needs to Know

Step 8: Transition Planning

Transition planning after the sale is often neglected, but it’s an essential element of a seamless handover. Proper transition means continuity for the employees, customers, and the new owner.

Some of the key tasks involved are:

  • Plan a transition document that contains essential operational processes and responsibilities.
  • Train and assist the new owner so that he has a smooth handover.
  • Communicate the sale to employees, customers, and stakeholders, addressing any concerns they may have.

Step 9: Address Legal and Tax Implications

Selling a business has significant legal and tax implications. Proper planning can help you minimize liabilities and maximize your net proceeds.

Some of the key tasks involved are:

  • Consult with legal and tax professionals to understand the implications of the sale.
  • Structure the sale in a tax-efficient manner, considering options such as asset sales versus stock sales.
  • Ensure that all legal requirements are met, as well as any regulatory approvals required for the transaction.

Conclusion

The process of selling a business is so complex, and one can feel helpless if there’s no guide. With the right checklist, one can confidently engage in the process of setting the value of his or her business, getting financial information prepared, getting confidentiality agreements signed, finding the right advisor, and thus successful sale.

To keep you on track, we have prepared a downloadable checklist that outlines all the necessary steps. Download your ultimate selling business checklist here and begin your journey towards a successful sale today.

By following this structured approach, you can maximize your business’s value, guarantee your interests, and smoothly transition to the next chapter of your professional life.

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