One of the first questions a seller often asks is, “What documents are needed to sell a business?”
It’s a great question and one that we’re more than happy to answer. We’ve split the required documents as follows:
- A checklist of the legal documents needed to sell a business.
- A checklist of the financial documents needed to sell a business.
It’s worth noting that you might not need all the documents presented on these checklists.
Legal Documents Needed to Sell a Business
- A Non-Disclosure Confidentiality Agreement
- Offer-to-Purchase Agreement
- Current Lease Agreement
- Enterprise Insurance Policies
- Business’ Professional Certificates
- Existing Vendor/Client Contracts
- Employment Agreements
- Letter of Intent
- Post-Closing Agreement
Financial Documents Needed to Sell a Business
- Personal Financial Statement (to be completed by buyers)
- Seller’s Discretionary Earnings
- Seller’s Discretionary Cash Flow
- Internal Profit & Loss Statements (dating back two to three years)
- Balance Sheet (updated/current version)
- Corporate Tax Returns (dating back two to three years)
- Accounts Payable Reports
- Seller’s Promissory Note for Financing
- UCC Financing Statements
- Escrow Agreements
Who Drafts These Documents?
A follow-up question to “What documents are needed to sell a business?” that you might be wondering is who is responsible for drafting these documents?
Selling a business requires the seller to work with a team of experienced M&A professionals including an M&A accountant, an M&A attorney, an M&A business broker just to mention a few.
Financial documents will be overseen by the finance team and legal documents by the attorney.
The Role of These Documents in the Selling Process
The courting phase of selling a business begins with general discussions as both the buyer and seller get to know each other.
However, before more intimate matters can be discussed and sensitive company information disclosed, confidentiality agreements must be signed.
Once this is done, the seller can hand over some of the legal and financial documents mentioned on the checklists above. It’s due diligence time.
All of this can progress quite quickly therefore it’s critical to ensure that as the seller, you’ve got your papers in order. The last thing you want is to make a buyer think twice about your level of preparedness.
What Does the Due Diligence Stage Involve?
Buyer due diligence is an intense period of time that sees the buyer and their buying team meticulously comb through every piece of paper you have provided.
Every document – financials, customer records, vendor contracts, sales reports, expense reports, tax returns – will be carefully examined.
They will ask for more information on gray areas. They are verifying the claims made in the initial negotiation stages. Doubling back on financials to see if everything checks out.
Sellers should be upfront if there are things the buyer must know because a diligent buyer will expose everything that you’ve tried to hide. And no one likes unpleasant surprises.
Protecting Yourself In The Event of a No-Buy
We’d all like it if every seller found a buyer. It would be the end of a great business journey for sellers whose exit plan is a buyout or acquisition.
However, not every business on the market will find a buyer. Sometimes it’s simply bad timing – trying to sell during an economic downturn or when the business is in financial distress. Sometimes it’s a missed opportunity – you’ve got a business that few are interested in taking over.
Whatever the case, these documents, especially the A Non-Disclosure Confidentiality Agreement, must not be treated lightly.
They will help to protect you in the event of a no-buy. That’s why it’s important to know what documents are needed to sell a business, even if you don’t end up with a deal on the table.
Do you Need Help Preparing the Documents Needed to Sell a Business?
Now that you know what documents are needed to sell a business, you might be feeling a little overwhelmed.
Our expert SunAcquisitions team is ready to offer assistance as you prepare to sell your business.
Discuss buying/selling a business with our M&A consultants, contact us today.
Looking for more insight on selling a business? Check out these links:
- Best Practices For A Successful First Meeting With A Business Owner
- Are You Financially Ready?
- Are You Emotionally Ready?
- Waiting Too Long to Sell
Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.
