List of Documents Needed to Sell a Business – Ultimate Guide
Every business sale is unique and requires different types of documents, making identifying and handling them overwhelming.
So, how do you decide which ones apply to your situation? How do you prepare, organize, and present them to potential buyers?
In this guide, we explore the primary documents needed to sell a business to streamline the M&A process from beginning to end and maximize your exit.
Let’s dive right in!
TL;DR - List of Documents Needed to Sell a Business
Here's a quick overview of the types of primary documents you'll need during a business sale:
Legal documents such as M&A NDA and binding LOI
Financial documents such as balance sheets and income statements
Key contracts and agreements such as customer and supplier contracts
Intellectual property documents such as patents and trademarks
Due diligence and compliance records such as valuation reports and business licenses
Operational and organizational documents such as bylaws and SOPs
Gathering and handling all the necessary documents can be overwhelming without the help of M&A experts. In addition to documentation, these experts can also help with marketing, negotiations, and closing the sale.
Exitwise helps you find the best M&A experts in your industry to assist you with the sale (including gathering all the necessary documents), ensuring you sell your business smoothly, faster, and at the best price possible.
Schedule a chat with our team today to streamline your entire M&A process and maximize your exit.
Importance of Documentation While Selling a Business
Thorough and accurate documentation is important during a business sale for several reasons:
Supporting Due Diligence: Documentation helps buyers conduct due diligence to expressly understand your business operations and unique selling points before deciding on the purchase.
Directly Impacts Valuation and Attractiveness: With the correct documents, your business looks more attractive to buyers, and its valuation can be higher since the documents prove your claims are valid.
Establishing Credibility and Trust: Having the correct documents helps build trust and credibility with potential buyers. They can see your professionalism, honesty, and transparency.
Allowing Smooth Transition and Integration: Documents such as supplier contracts, customer lists, employee details, and standard operating procedures are handy after the sale. They make the post-sale transition and integration easier for you and the new owner, reducing risks that may reduce your M&A success rate.
Steps to Create a Sale of Business Checklist for Documents
Since there are so many sale of business documents to consider, you can easily lose track, omit key documents, and potentially jeopardize the sale.
You'll want to create a quick checklist using the steps below:
Define and keep track of the purpose, which is to ensure proper documentation for a smoother sale.
Identify all the categories of documents needed, such as legal, financial, and operational documents.
Identify all the relevant documents for each category.
Ensure all the documents are accurate, up-to-date, well-organized, and compliant with regulations.
Make a progress table or spreadsheet showing if a document has been completed or is in progress.
List of Documents Needed to Sell a Business
Now, let's dive deeper into the list of business documents needed for every category, what they are, and why they matter:
Legal Documents Needed to Sell a Business
Legal documents are essential because they protect you and the buyer by expressing each party's responsibilities and rights. They also reduce the risk of disputes and ensure compliance with the law.
Here are some crucial legal documents to consider:
Binding Letter of Interest: A binding LOI is legal if it has clauses that both you and the seller agree to and sign, such as the exclusivity or confidentiality clause. The buy-side sends you a letter of intent to buy your business, and you can negotiate before signing and returning it.
M&A NDA: An M&A non-disclosure agreement is a legally binding document you send to potential buyers so they can keep sensitive information about your business or the sale private.
M&A Term Sheet: A crucial preliminary document outlining the key conditions and terms of a deal, an M&A term sheet originates from the buy side but features your signature as the seller. The document is typically not legally binding but may contain binding clauses.
Sale Agreement or Purchase Agreement: The sale or purchase agreement typically outlines the terms of the sale, the assets and liabilities involved, the purchase price, reps and warranties, and closing conditions, among other things. Depending on the deal structure, it may be of different types, such as an asset purchase agreement or a merger agreement.
Financial Documents
Business sale financial documents help with the valuation, showing compliance and historical financial health.
You'll ideally want to have different documents for the current and the last 3-5 years, including:
Balance Sheets: Business valuation companies and potential buyers look at balance sheets to determine your business's assets, equity, and liabilities at a specific date.
Income Statements: Your business’s profit and loss or income statements show your revenues, expenses, and net profit over a specific duration.
Cash Flow Statements: Valuers and prospective buyers require these to see your business's liquidity levels and ability to generate reliable cash flows to pay its debts and expenses.
Tax Returns: Buyers want to see that your business is legitimate, financially stable, and compliant. Tax records may also show if you have any potential tax issues that may affect the sale.
Bank Statements: Buyers may want to see proof of business transactions, including details of owner withdrawals if applicable.
Loans and Credit Agreements: You can show your buyers all your debts and creditors and the current agreements with them. The information is crucial if the new owner is to assume any liabilities.
Key Contracts and Agreements
You can provide key contracts and agreements to help the new owner transition smoothly and minimize potential disputes with other stakeholders.
Here are some crucial documents under this category:
Customer Contracts: You can include customer lists and any corresponding contracts with them that may affect the sale or post-purchase success.
Supplier or Vendor Contracts: Negotiate with your suppliers to make their contracts transferable if they aren't. Buyers typically want to work with transferable contracts to ensure smooth business continuity after the sale.
Employee and HR Documents: Prepare a detailed analysis of key employees, non-compete clauses, employee benefits, remuneration, titles, years in the business, and roles.
Lease Agreement: If your business operates on leased premises or uses leased equipment, you should furnish the new owner with the current agreements for each lease.
Intellectual Property Documentation
Intellectual property documentation is ideal as it shows that these properties are appropriately registered, documented, and protected. Buyers also want to see if they are transferable to a new owner.
From the sell-side perspective, highlighting your intellectual properties is ideal because they are intangible assets that can increase the valuation of your business.
You can provide buyers and valuers with intellectual properties such as:
Copyrights
Trademarks
Domain names
Trade secrets or processes
Liens on intellectual property
Pending, applied, and granted patents
Product or service licensing agreements
Industrial designs and design applications
Any agreements on the ownership and usage rights of slogans, advertising copy, logos, patents, designs, and processes, among others.
Due Diligence and Compliance Records
Due diligence and compliance records allow prospective buyers to thoroughly examine a business to ensure it is as you present it and identify potential issues that could affect the sale.
The M&A process can involve due diligence documents such as:
Confidential information memorandum: A sell-side document, the confidential information memorandum professionally summarizes your business for interested pre-qualified potential buyers. The document streamlines the sale process by helping you collect all the information the buyer will likely request during buy-side due diligence.
Business Valuation Documents: Potential buyers require details about the projected value of the business, including a detailed business valuation report.
Legal Records: Prepare evidence of any past or current litigations.
Insurance Policies: Buyers want to see your business's insurance coverage to see how well you have secured it against potential risks.
Closing Documents: These showcase the terms and conditions you agreed upon with the buyer during negotiations. They include bills of sale to confirm the transfer of assets and assignment agreements to transfer rights and obligations to the buyer.
Additionally, the compliance documents included in the process include:
Permits: These include operating permits and environmental permissions.
Licenses: These include business, professional, or industry-specific licenses.
Health and Safety Records: Buyers want to see that your business has a clean bill of health regarding workplace safety to reduce risks of injuries and legal actions.
Operational and Organizational Records
Operational and organizational records show your business governance structure and how you run daily operations.
You'll need documents such as:
Business plan
Governance hierarchy
Workforce composition
Bylaws and amendments
Shareholder agreements
Company minutes book or last meeting minutes approving the sale
Standard operating procedures (SOPs) for key business operations
Articles of incorporation to confirm your business's legitimate existence
How to Organize and Present Documents to Buyers
Collecting, organizing, and presenting documents to potential buyers can be daunting.
Instead of working alone after gathering the documents, you can have M&A experts help you organize and present them in the best way to buyers.
These professionals can store the documents in their virtual data room, give potential buyers different access levels, and protect the information.
The good news is that you don't have to break a sweat putting together an M&A team.
At Exitwise, we use a tested and proven three-stage process for interviewing, hiring, and working with industry-specific M&A professionals.
Take Help from Exitwise to Hire M&A Experts and Sell Your Business Effortlessly
In addition to organizing and presenting your business documents to prospective buyers, the M&A experts we connect you with can help you with the sell-side M&A process from beginning to end.
They can help you gather all the necessary documents, market your business to pre-qualified buyers, negotiate the sale for the best purchase price, close the transaction, and even transition successfully.
Reach out to the Exitwise team now to hire the best experts to help present your business in the best light to potential buyers and optimize your business exit.
Frequently Asked Questions (FAQs)
Here are quick questions regarding business sale documents:
What Documents Are Needed for Inventory and Asset Transfers?
Inventory and asset transfers require documents such as bills of sale, internal transfer requests, and asset condition reports.
They also require detailed asset and inventory risks and asset or inventory transfer forms.
Why Is a Non-Disclosure Agreement Necessary in a Sale?
The primary purpose of a non-disclosure agreement in a business sale is to protect sensitive information about your business and the sale from leaking to the public.
The document also shows your professionalism, which fosters trust.
What Is Included in a Business Purchase Agreement?
A business sale agreement typically includes details such as:
Names and contact details of the involved parties
Identity of the business on sale
Representations and warranties
Signatures of involved parties
Closing conditions
Termination clause
Dispute resolution
Purchase price
Payment terms
Indemnities
How Should Legal Documents Be Organized for a Business Sale?
The best way to organize legal documents for a business sale is to put them in a virtual data room, where different parties can have varying access and editing levels.
Your M&A team typically puts all your documents in their data room, organizing them by name, date, purpose, parties involved, or other aspects.
Conclusion
Knowing the significant documents needed to sell a business is only one part of the equation. You must complete other activities such as marketing, negotiating, and closing the deal.
All these can be an uphill task on your own, which makes it necessary to work with an M&A team to help you sell at the most favorable terms possible.
When you work with us at Exitwise, we help you find and work with the best M&A experts to assist with optimizing the sale.
Chat with our team today to realize the exit you’ve always hoped for!
