Selling a business takes planning, preparation and organisation so you can get the maximum asking price. Give yourself plenty of time to put everything in order – your accounts, systems, people and those must-have presale documents. As you look over the list that follows you might feel a little daunted but its important to realise that time spent on preparation and the quality of information you can provide to a potential buyer will have a major bearing on the success of the sale. The other important fact that cannot be overlooked is that as the business owner, no-one knows your business the way you do. You have to get that knowledge out of your head and document it so other’s can see its value. There is no short-cut to this process and the only way to prepare these documents is to bite the bullet and do it. Most of this information applies if you are managing the sales process yourself but even if you employ a broker, s/he is going to need very similar information.
You need to prepare the following documents presale.
- Confidentiality Agreement
- Information Memorandum
- Summarised Information Memorandum
- Buyer Enquiry Form
- Letter of intent
It is crucial to get a Confidentiality or Non-Disclosure Agreement signed before giving out any confidential information to a potential buyer. This document binds them to the terms of the agreement. Genuine buyers are fully prepared to go along with and sign the correct confidentiality agreement. Be wary of giving out too much company information too early in the process. Take time to get to know and assess the sincerity of the enquiry, only providing more detailed information when appropriate.
Information Memorandum for Selling a Business
The Information Memorandum is a document that tells a potential buyer all about your business and as such it is your primary marketing tool. The Information Memorandum should make the business sound appealing, and present all the significant information in a straightforward manner so a buyer can determine if they are interested in pursuing a purchase. It doesn’t cover everything however and if they are interested they will need further information. The following are some of the topics covered in a typical Information Memorandum:
- Introduction and Summary
- Description of the Business
- Asking Price and Selling Terms
- The Industry
- Your Competition
- Your Products/Services/Customers
- Major Assets
- Business Plans
- Financial Statements
Summarised Information Memorandum
Once you have completed the Information Memorandum, you should also do a summarised version. You determine the level of information that you will send. Be certain you have the Confidentiality Agreement signed and returned before sending out such detailed information.
Buyer Enquiry Form
Qualifying potential buyers is an important part of the sales process. We have created a Buyer Enquiry Form that provides a list of the critical questions you need to ask each and every prospect. It also has a system to measure and manage buyer enquiries, in a simple to follow format. Be wary of giving out too much company information too early in the process.
Letter of Intent
A Letter of Intent or a Term Sheet lays out the economics of the transaction before due diligence is completed. The most important terms include the price, the deal structure, assets and inventory, non-competing covenant, who will be responsible for liabilities, information regarding due diligence.
Quick Note on Due Diligence
A buyer may want to examine a wide range of information before purchasing. You will more than likely have the information already on hand, but things do change. It is wise to double-check any documents that potential buyers may request to view. It is advisable to set up a ‘business sale ready’ binder (we suggest a red one to reinforce its importance), with sections for the different types of information required for the sale. This will save a lot of time, and you will appear more professional to the buyer. Try to limit the length of the due diligence period, particularly when dealing with a larger corporation. Make sure you have told your potential buyer everything – negative and positive – before they find anything. If they find any unexpected surprises, they can try to negotiate the sale price downwards or may even lose interest altogether. If all things go well during due diligence contracts of sale will be drawn up and the sale process completed. In our next article we’ll provide you witha list of legal contracts you may need to facilitate the sale.