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Important List Of What Brokers Need From Sellers

Contributed by Joe D. Robertson

Below is a short list of the minimum documentation you will need to provide your business broker before he or she can begin marketing and representing your business for sale. Keep in mind that having everything prepared and completed before you market the business is essential. First, your broker will be able to better analyze your business for potential pitfalls giving them time to come up with solutions before problems arise or adjust the expectations of the sale to the seller. Second, there is nothing that dampens a buyer’s interest in a business more than waiting around for documentation.

Remember, buyers are looking at a variety of opportunities at the same time. They will grow tired of waiting and become frustrated (and possibly distrusting) if requests for information drag on and on. Finally, your business broker presents the best aspects of your business to a buyer much like the way a lawyer tries to win a court case. With more evidence to prove your case, the greatest chance for success! Don’t skimp and expect buyers to be impressed.

Profit and Loss statements for the past 3 years

This report (along with a Discretionary Earnings analysis which is created from the P & L) is the main evidence a seller and their broker will use to justify the company’s purchase price. In the past, parties have refused to share this information claiming it was proprietary or a vital business secret. Understand P&L are private information, but without the broker being able to review them and then share them with a potential buyer (at the appropriate time) in most cases, you will not sell your business.

Interim Profit and Loss statements.

Potential buyers will want to be assured that the business’s sales have not dramatically decreased since the business was put up for sale. This statement can also be a great device to allow the seller to prove how lean and profitable he or she can run the business.

Income Tax Return (Corporate or Schedule C)

In most sales, buyers will ask to take a look at the Federal Income Tax Returns. There are many companies whose Tax Returns do not match their P & L perfectly. This is information that must be known from the beginning of the sale. It is better to explain the situation to a potential buyer than have them feel the seller was not upfront with them. If the seller is unwilling to share Tax Returns at the appropriate time (after securing an offer) most buyers will not want to continue with the purchase.

Copy of Lease (including latest amendments and or assignments).

The lease can be a deal killer (especially if ignored until the later part of the sales process). Review your lease with your broker; find out if it is assignable. If it is not, you or your broker should contact the landlord and discuss the possibility of a new lease with a qualified buyer. Find out what the landlord is looking for in a buyer so your broker can use these standards to qualify any potential purchaser.

Complete list of Furniture, Fixtures and Equipment.

This list will be become part of the final purchase agreement. Having a completed list to review during a tour in the due diligence process will insure that the buyer and seller have no miscommunications regarding what is included and what is not included. Any equipment that is not fully owned by the business must be noted. If it is on loan from a distributor or being purchased through a capital lease, your broker and any potential buyer must be notified.

Remember, this is the bare minimum of documentation need to start marketing a business in most cases. I have a more detailed list, but not all parts of it are applicable to every type of business (e.g. Franchise agreement, Aging A/R report, copy of necessary licenses, ect.). As general rule, the more complex or large the operation, the greater the amount of information your broker will need.

As a final note, this list does not include the supplemental information the broker will need to understand the details of you operation (history, competitive edge over competition, employee details, etc.). Every brokerage has different interview processes with their sellers, but once again, the more information you give your broker the better equipped he or she is to represent your company in its best light.

About The Author: Joe D. Robertson, CBB is the broker / owner of Southern California Business Broker. Joe has over eighteen years of experience owning, operating and selling successful businesses. Joe can be reach by phone at 949-307-3817.

Watch for more blog posts / articles from me in the future!

Posted on June 16, 2009 | Email This Blog Post | Print This Blog Post | All Contributions From Joe D. Robertson

Categories: BizBen Blog Contributor, Selling A Business

Comments:

Good point about being upfront with your clients. I think some sellers are afraid that a buyer will have a negative view if they knew the truth about some aspect of their business but often it's the opposite. People who buy businesses always see what they can bring to the party. I've had real poorly run businesses that sold fast because everyone knew they could do better than the seller was doing. If the problem is in the employees, the lease or the equipment, again problems need to be dealt with head on. The only thing I'm sure about is that if you attempt to try and sweep it under the carpet it will get exposed at some point and the whole deal will be in jepordy of falling apart.

Christina Lazuric at California Business Brokers

Posted by: Christina Lazuric, California Business Brokers

Please add an operating manual and a marketing plan to this list. I think if brokers get in the habit of asking for those things and if sellers get in the habit of preparing them for buyers, we'll see more businesses getting sold. These are very powerful selling tools. They reassure any prospective buyers that the seller has a good handle on the business. And these are documents that lenders like to see also. I think a professional presentation on a business includes a list of all the positions and what the employees do in those positions (in other words, what all the procedures are), and also what is the plan for expanding the business. Buyers don't get to read these documents, but it is great if a buyer knows these exist for a business he may want to buy. Once you finish the escrow, or maybe it's during due diligence, the buyer would be permitted to get these documents to read.

Posted by: Steve C.

Good points here. It always helps if the seller is prepared and makes sure the broker has everything needed to work with. It's an excellent way to build your relationship with your broker. He or she will work a lot harder for you if you provide the tools to do the job. I like to give all of my listing clients equal time, but there's no question that the sellers who are really pro-active in cooperating will get the most attention.

Posted by: Steve C.

Joe, Good article, to add to that, Some other real key issues that we need to have, a list of employees and their duties. Are they paid on a 1099 or cash under the table. Are they paying their W/C? Is the owner actively working in the business as a mechanic, cook or other integral positions. If we get a yes to any of these questions we need to adjust the cash earnings downard and to make sure these items are explained in the business summary and recasted financials. Buyer must sign off on these issues as well, without liability to Broker. Take Care, Hal Janke, CBI, AMAA, SBA

Posted by: Hal Janke, CBI, AMAA, Omega-Group

Joe has hit the nail on the head in this well stated posting. The items listed are a bare minumum PRIOR to doing any marketing. All too often, new information comes to light when a true and serious buyer is at the negotiation table. Many of these bombshells would not be an issue of they are discussed up front, but will kill a sale when they come up out of the blue.

Steve Peters at CEO Business Brokerage

Posted by: Steve Peters, CEO Business Brokerage

All of these things mentioned are very important. I think it is just as important to provide balance sheets to go along with the P&Ls. Otherwise, the buyer only sees half the picture. If the profit seems to be holding steady, year to year, but the balance sheet shows that inventory and working capital are declining, it's likely the business is not doing as well as the P & L would lead you to think. Or if the assets side of the balance sheet is growing over time, it can mean the profitability of the business is even better than what is suggested by the P & L.

Posted by: Ron F.