5 Steps For Preparing Your Business To Sell

The documents needed for a business valuation can differ based on factors such as your business's nature, industry, and the purpose of the valuation. However, there are standard documents and information that are usually required to carry out a comprehensive business valuation. Below is a general compilation of the documents you might be requested to provide:

1. Financial Statements:
   • Income Statements (Profit and Loss Statements): Typically covering the last 3-5 years.
   • Balance Sheets: Providing a snapshot of the company's financial position.
   • Owner Discretionary Sending: It is very important to identify expenses or purchases made that are specific to the owners use that an employee of the business would be unable to take advantage of….such as: car payments, auto expenses, cell phones, owners insurance, owners salaries, travel costs, dining out, misc supplies, etc.  Keep in mind that Owner Discretionary Spending (ODS) is a common practice as very few small business owners wish to show large profits at the end of the year and pay taxes on funds they don’t actually pay themselves. The sum of the ODS is added back to the bottom-line Net Profit, which increases the value of the business.
   • Another item to identify are any major one-time expenses, such as major equipment or building enhancements.  The lenders base their qualification of the business on the on going expenses and will sometimes allow these one-time expenses to be considered as an “add back” which again, increases the value of the business.
2. Tax Returns:
   • Corporate Tax Returns: For the past 3-5 years.
3. Cash Flow Statements:
   • Cash Flow Statements: Detailing how changes in balance sheet accounts and income affect cash and cash equivalents.
4. List of Assets:
   • Asset Inventory: Including both tangible assets (equipment, property) and intangible assets (patents, trademarks).
5. Liabilities and Debt Information:
   • List of Liabilities: Including loans, mortgages, and other debts.
6. Customer and Supplier Contracts:
   • Customer Contracts: Highlighting any long-term or significant contracts.
   • Supplier Contracts: Indicating important supplier relationships.
7. Employee Information:
   • Employee Contracts: Including key employment terms.
   • Organizational Chart: Showing the structure of the company.
8. Intellectual Property Documentation:
   • Patents, Trademarks, and Copyrights: Documentation and registration information.
9. Lease Agreements:
   • Real Estate Leases: If applicable.
   • Equipment Leases: If applicable.
10. Operational Documents:
    • Standard Operating Procedures (SOPs): Documenting key processes.
    • Business Plans: Providing insights into future plans and strategies.
11. Customer and Sales Information:
    • Customer Lists: Including the concentration of sales among key customers.
    • Sales and Revenue Breakdown: By product, service, or geographic region.
12. Market and Industry Information:
    • Market Research: Highlighting industry trends and market conditions.
    • Competitor Analysis: Understanding your competitive landscape.
13. Insurance Policies:
    • Insurance Policies: Providing information on coverage and terms.
14. Legal Documents:
    • Legal Agreements: Such as partnership agreements, shareholder agreements, and any pending legal issues.
    • Regulatory Compliance: Ensuring the business complies with relevant laws and regulations.
15. Management and Ownership Information:
    • Ownership Structure: Detailing the ownership distribution.
    • Management Profiles: Describing key management personnel.
16. Projections and Forecasts:
    • Financial Projections: If available, especially for future revenue and expenses.
17. Customer Feedback and Reviews:
    • Customer Feedback: Positive reviews or testimonials can provide additional insights into the business's reputation.
18. Industry Certifications and Accreditations:
    • Certifications: If your business holds industry-specific certifications.

It is essential to have precise and thorough information when determining the value of your business and getting it ready for sale. Collaborating with seasoned experts like business appraisers or financial analysts can provide valuable guidance throughout this process, guaranteeing that all relevant paperwork is taken into account.