Preparing to Sell Your Business

Complete Documentation of Financials                                                 

Buyers want provable cash flows.  A truly marketable business will be capable of providing the following financial records for at least 3 years:

            a. Federal Tax Returns

            b. Income Statements

            c. Balance Sheets

            d. Excise Tax Returns

            e. Payroll Records

Continuity of Ownership                                                                                                          

Long Term/Favorable Lease                                                                                                    

Buyers look for businesses with leases of at least 5+ years remaining, with annual rental increases of about 3%.  Most buyers strongly prefer a gross revenue to rent ratio of no more than 6-8%.

With the growing sophistication of buyers, the pricing of a business for sale is the single most important factor in determining whether it sells, and how quickly it sells.  Regardless of how well positioned a business may be relative to the other factors mentioned, an overpriced business will often remain on the market for a very long time, receiving minimal buyer attention.  A well priced business will receive a lot of attention as soon as it is listed, meaning many more possible buyers! 

Other than pricing, the terms of sale are the next most critical component in determining the marketability of a business.  Every business is made more marketable if some amount of seller financing is offered.  For businesses that are unable to produce complete documentation of financial records, sellers should expect to finance 50% to 70% of the sale. 

The condition and appearance of the operation is extremely important, especially if the business deals directly with the public.  A neglected facility is a frequent reason for interested buyers not making an offer, or making offers significantly lower than the asking price.

Having good people in place is very important.  Poor morale and inattentive workers are negative factors that jeopardize deals.  If your business is not very dependent on you, the marketability and value of it increases.