Selling your family business can be difficult both emotionally and practically. As an entrepreneur, you’ve put your life’s work into growing a successful company, and the idea of selling can be tough to swallow.
On top of your mixed emotions, you’ll have to ensure everything is in order financially and operationally if you want the sale to go smoothly. While selling your small business isn’t an easy endeavor, logistically there are ways to make it simpler and take out some of the friction.
All it takes is a little bit of time to prepare your business for a new owner and get yourself organized before talking to potential buyers.
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Key to Selling Your Family Business Is Transparency With Buyers
The key to working with potential small-business buyers is to be as transparent as possible. They’ll come with a list of questions and expectations, and you want to be ready. Showing potential buyers the fullest and most accurate picture of your business is the only way to set things off on the right foot.
Not sure what potential small-business buyers will be looking for? We’ve got you covered with a list of 14 things buyers will expect (and you’ll want to have ready) when you sell your family business.
At first glance, it may look like a lot. But keep in mind you likely have most — if not all — of these things on file already. If you’ve kept a well-organized business over the years, it’s just a matter of gathering everything and making sure it’s up to date.
Let’s dive in.
First things first: Buyers will probably want to know why the business is for sale. Sometimes sellers are simply ready to retire, and sometimes they want to get out of business for another reason. Be ready for this question with an honest and straightforward answer.
Before you start talking to prospective buyers, you’ll want to have the following documents and information ready.
1. Business Plan
Buyers want to see your business from an insider’s perspective. Your business plan clues buyers in to your business objectives and goals from operational, financial and marketing perspectives. Your business plan serves as your road map — it shows buyers where the business came from and where it’s headed.
Make sure your business plan includes the following:
- Executive summary
- Company description (including products and services)
- Market analysis
- Organization
- Marketing strategy
- Financial projections
- Budget
2. Financial Statements
Financial statements are crucial to have ready, as buyers will usually ask to see them. Ideally, you’ll want to have all of these documents audited by a financial professional. Buyers commonly have their own accountants to help them review these documents as well.
Be ready with the following:
- Tax returns
- Balance sheets
- Cash flow statements
- Accounts receivable
- Accounts payable
- Credit history
- Debt disclosure statements
- Advertising costs
3. Business Licenses and Permits
Buyers will want to make sure any permits and licenses you hold are valid and current. Requirements for licenses and permits will vary depending on your location and the type of business you operate.
4. Organizational Paperwork
Your organizational paperwork shows proof of registration and shows buyers the legal standing of your business. Depending on how your business is classified, these might be the articles of organization or the articles of incorporation.
5. Certificate of Good Standing
A certificate of good standing verifies your company complies with state regulations. If you don’t already have one, check with your state to see how to obtain one.
6. Contracts
Buyers may ask to see any current agreements your business has with customers, clients or vendors. These allow them to understand your customer base and see where the business’ revenue is coming from.
7. Leases
If your business leases anything — such as facilities, land or equipment — potential buyers may ask for the details. They’ll need to know whether or not they can get these agreements in their name (if they want to continue leasing these assets) or if they need to get new leases.
8. Organizational Chart
An organizational chart illustrates the structure of your business. It shows your employees’ roles and how they relate to one another. It might even include information like management details, compensation and benefits.
9. Employee Contracts
If your organizational chart doesn’t include information about your employees’ compensation and benefits, their contracts will. Employee contracts allow buyers to see the details of each employee’s professional role within the company. Whether these details are in your organizational chart or employee contracts, make sure you have them available for potential buyers to review.
10. Operating Manual
Your operating manual describes how your business runs. Buyers should be able to gain a thorough understanding of how your business operates by reading it. The operating manual includes things like business processes, employee roles and guidelines, policies and emergency plans.
11. Inventory List
It is common for buyers to review a complete inventory of any equipment and other physical assets that come with the sale of your business. Knowing these details can help both of you negotiate a fair price, and it can help the buyer determine what additional equipment he or she may need to invest in.
12. Brand and Intellectual Property Assets
Smart buyers may want to see more than just your business’ physical assets. They’ll also want to see other intangible assets, such as intellectual property, brand assets and customer lists.
13. Business Insurance Policy
Buyers will likely want to know that your business is protected, so have a copy of your business insurance policy handy.
14. Letter of Intent
When you’re interested in a particular buyer (and they’re serious about buying your business), you’ll want to issue a letter of intent (LOI). This document includes the details of an agreed-upon price, terms and conditions and what’s included in the sale.
Being Prepared Will Make the Whole Process Smoother
Having all the right documents and information handy will help make selling your family business so much easier. But if you’ve been unorganized over the years, the process of gathering this information might take up more of your time than you wish.
Whether you’re ready to put your business on the market tomorrow or you plan to keep your business for decades to come, it’s never a bad time to get these things in order. Do yourself a favor — start today.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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