Selling a Business Checklist - Complete To-Do List
From due diligence and marketing strategies to negotiations and post-sale considerations, here's the essential checklist for selling your business.
Brian Dukes
Brian holds a Mechanical Engineering degree from Michigan Tech, where he also served as captain of the men’s basketball team. He began his career at Deloitte, earned his MBA from the University of Michigan, and later co-founded and scaled a technology agency to more than $1 billion in value. Today, he leads Exitwise, guiding founders through the M&A process with confidence and clarity, and has supported over $1 billion in successful business sales.
Going through a comprehensive checklist before putting your company on the market helps ensure you've covered all essential aspects.
Need help navigating valuation, legal documentation, and negotiations?
This blog post will offer clear, step-by-step advice and Exitwise strategies to consider when preparing a business for sale.
Let's tackle the biz-for-sale challenges head-on. We'll help you feel more in control and confident in getting a satisfying business sell agreement.
TL;DR - Selling a Business Checklist
Whether you have a large or small business on sale, to ensure a smooth and profitable transition, you need to:
Gather the essential financial and legal documents to sell a business.
Enhance your business appearance and address existing legal or financial issues.
List the business, review and negotiate offers, and close the sale.
Manage post-sale activities, including financial settlements and record-keeping.
Why a Checklist Is Critical When Selling a Business
Before you dive into the sale process, having a clear roadmap can make every step more manageable and far less stressful.
Here's why a detailed checklist is important when selling your business:
Provides Structure and Organization: A checklist simplifies an otherwise complex, overwhelming process into a series of manageable tasks, helping you stay on track without missing crucial steps.
Helps Maximize the Value of Your Business: By identifying areas for improvement before potential buyers notice them, a checklist helps you present your business in its best possible light. You are more likely to receive a higher valuation and a better sale price once you make the necessary improvements.
Prevents Costly Mistakes and Deal Failures: Without a checklist, you risk overlooking crucial details, which can cause M&A delays or even make the deal fall apart during or after buy-side due diligence.
Shows Professionalism: A checklist helps you organize your documents and information in a formal manner, instilling confidence in potential buyers and leading to smoother negotiations.
Assessing Your Readiness to Sell
Figuring out if you're ready to sell your business is a lot easier when you walk through the key things buyers consider.
You'll want to pay attention to the following aspects systematically to find out whether you are ready:
Score Key Readiness Areas: Give each major area a simple rating to create a clear picture of your preparedness. Consider rating aspects such as your willingness to let go of the business, financial health, operations, legal, and exit planning. The numbers you assign here will turn general impressions into measurable insights.
Gather Evidence to Support Each Assessment: As you assess and rate each area, note the supporting documents or data and where you host them. Your conclusions need to be grounded in verifiable information.
Identify and Prioritize Weak Spots: Highlight any areas that feel risky, outdated, or incomplete. Rank these by their potential impact and focus on the improvements that matter the most to buyers.
Get an Outside Perspective: Share your self-assessment with a trusted M&A advisory team to challenge or validate your conclusions. Their objective insight can reveal issues you may not have noticed.
Reassess Regularly as You Approach the Sale: Repeat the evaluation periodically to track your progress and adjust your preparation as needed. Consistent reviews reduce surprises and strengthen your overall readiness, helping you catch any new issues that might arise.
Documents Needed to Sell a Business
To be ready for sale, a company must have all the documents needed to sell a business in order. Below, we outline what documents you need to ensure a smooth and legally compliant transaction:
Financial Records and Statements
Gather these documents to reflect your business's financial health:
Profit and loss statements (last 3-5 years)
Balance sheets
Cash flow statements
Bank statements
Credit statements
Sales records and projections
Tax Documents and Filings
Potential buyers want to know if your business is compliant with fiscal regulations, and the tax documents below can demonstrate it:
Federal and state income tax returns (last 3-5 years)
Providing the following documents should assure potential buyers that your business is compliant with zoning laws and operates within the legal framework:
Business formation documents (e.g., articles of incorporation, certificate of incorporation)
Business licenses and permits (e.g., certificate of occupancy, land use permit, environmental assessments, etc.)
Legal judgments or pending litigation documents
Employee Records and Contracts
To reflect your company's employment standards and commitment to maintaining a professional work environment, provide the following:
Employment agreements
Non-disclosure agreements (NDAs)
Non-compete agreements
Employee manuals and policies
Benefit plans and retirement account records
Supplier Contracts and Agreements
Providing supplier contracts and agreements like the ones below highlights your business's external relationships and the ability to maintain stable supply chains:
Current supplier/vendor contracts
Service level agreements (SLAs)
Exclusive supply agreements
Purchase orders
Customer Records and Agreements
This data reflects your business's market presence and customer relationship management:
Client contracts and agreements
Order histories
Customer lists and contact information
Customer service records
Inventory Lists
Inventory lists showcase your inventory management and operational capacity. Provide potential buyers with:
Current inventory details
Inventory management records
Historical inventory levels
10 Key Steps to Selling a Business
Selling your business is a significant decision that requires careful planning and strategic execution.
Follow these steps on how to prepare a business for sale and transition smoothly and profitably:
1. Preliminary Steps
First, understand your business's value and align your personal and business objectives for the sale:
Business Valuation: Obtain a professional valuation to understand the worth of your business.
Reason for Selling: Clearly define why you are selling (retirement, new ventures, etc.).
Consult Advisors: Engage a lawyer, accountant, and business broker for professional advice.
Exit strategy planning: Develop a clear plan for your exit from the business.
Personal financial assessment: Evaluate personal financial implications post-sale.
2. Financial Documents
These well-organized financial records build trust and clarity with potential buyers, boosting their confidence and simplifying the evaluation process:
Profit and loss statements: Gather the last three to five years' records.
Balance sheets: Provide current, up-to-date, and historic balance sheets.
Tax returns: Collect tax returns for the previous three to five years.
Cash flow statements: Illustrate the cash flow in and out of the business.
Debt and liability statements: Include details of any outstanding debts or liabilities.
Audit reports: If available, provide recent audit reports for transparency.
Legal documentation validates your business's legitimacy and operational compliance. Make sure you gather the following:
Business licenses and permits: Check that they're all current and transferable.
Incorporation documents: Provide articles of incorporation and other formation documents.
Contracts and leases: Pull out existing contracts with clients or lease agreements.
Intellectual property documentation: Verify your patents, trademarks, copyrights, etc.
Compliance records: Provide documentation of compliance with industry regulations.
Litigation history: Disclose any past or ongoing legal proceedings.
4. Business Operations
Want to highlight business strengths and growth potential? Give potential buyers a blueprint of your business's day-to-day functioning with the following data:
Business plan: You need a current and detailed business plan.
Employee information: You want to show the contracts, roles, salaries, and benefits of current employees.
Customer lists: Include detailed profiles of current and past clients.
Supplier/vendor contracts: Provide details of current supplier and vendor agreements.
Operational manuals and SOPs: Include all the documents that ensure compliance with legal and regulatory standards.
Inventory records: Pull out detailed historical and current inventory lists.
5. Marketing and Sales
This information not only demonstrates past and current performance but also helps buyers assess future growth opportunities:
Marketing materials: Gather samples of your brochures, flyers, and online marketing content.
Sales records: Prepare a detailed analysis of sales patterns and customer demographics.
Market analysis: Provide insights into the current market trends and demonstrate how your company positions.
Customer feedback and reviews: Include insights into customer satisfaction from any recent feedback you got.
Digital marketing footprint: Compile online marketing strategies and presence details to show how your business is perceived online.
6. Preparing for Sale
Preparing your business for sale involves aesthetic and operational enhancements to attract the right buyers. Here's what you must do at this step:
Improve business appearance: Make the business premises visually appealing.
Confidentiality agreements: Draft an agreement for prospective buyers to sign before giving them access to your business data.
Operational improvements: Update or repair essential equipment and facilities.
Business performance analysis: Review and document business performance metrics for valuation.
7. Listing the Business
A well-executed listing strategy increases visibility to potential buyers, ensuring a wider pool of interested parties. Make sure you focus on the following:
Sales memorandum: Write a document that outlines your business for potential buyers, including:
Executive summary
Business description
Market analysis
Financial information
Assets and resources
Management and personnel
Growth potential
Reason for sale
Terms of sale
Advertising strategy: Plan how and where to list the business for sale.
Screen potential buyers: Qualify buyers to save time and avoid sharing business information with the wrong persons.
Target buyer profile: Identify and outline your ideal buyer profile.
Confidentiality strategy: Plan for maintaining confidentiality during the sale process with NDAs, discreet marketing tactics, and secure virtual data rooms.
8. Negotiation and Due Diligence
Negotiation and due diligence are critical phases where offers are evaluated and verified. This step involves:
Evaluation criteria: Establish criteria for evaluating offers.
Initial offers: Review and respond to purchase offers.
Due diligence: Allow the buyer to verify business information.
Negotiation: Set your negotiation terms like price, sale terms, and transition, and work with buyers to agree.
Legal review: Have legal advisors review and advise on offers and agreements.
9. Closing the Sale
Closing the sale requires attention to detail and adherence to legal and financial protocols. You must focus on:
Transfer of assets: Ensure smooth transfer of all business assets.
Notify employees and clients: Communicate the change in ownership and prepare to address any concerns your employees and clients might have.
Post-sale transition: Plan for a transition period, if necessary.
Regulatory compliance: Ensure all regulatory requirements are met for the transfer.
10. Post-Sale
Effective post-sale management sets the stage for the new owner's success and your next venture. Prepare for these last bits:
Financial settlements: Ensure all financial matters are settled.
Record keeping: Maintain records of the sale and all related documents.
Consultation availability: Be available for consultation post-sale if agreed upon.
Post-sale business involvement: Define any ongoing participation in the business, if necessary.
Tax planning: Consult with a tax advisor for post-sale tax planning.
Checklist for Evaluating Buyer Offers
Whether you receive an unsolicited offer to buy your business or get some after putting it on sale, you'll need a systematic way to evaluate the merits and demerits of each offer.
Here are the key aspects you should consider:
1. Financial Terms
Evaluate the following points:
Price and Payment Structure: Analyse each proposed purchase price, payment methods, and any earn-out clauses attached to the future performance of the business.
Financing: Investigate the buyer's M&A financing system, including the source and reliability. A higher offer can be appealing, but it's riskier than a lower offer if its funding is uncertain.
2. Transactional Aspects
Ensure the details below are in order:
Legal Structure: Examine the proposed legal structure of the deal to see if it matches your preferred option. Is it a stock sale agreement or an asset sale agreement?
Due Diligence and Contingencies: Review the scope and duration of the buyer's due diligence and the conditions they need you to meet before the deal proceeds.
3. Sale Timeline
The deal should account for the timing of the transaction and how it fits in with your goals.
The key timing considerations can include:
Proposed Timeline and Closing Date: Assess whether the buyer's projected schedule fits your business and personal expectations.
Deadline Flexibility: Determine how prepared the buyer is to act with speed, how flexible they are with deadlines, and whether their timing could disrupt your business.
4. Buyer and Post-Sale Considerations
A good deal goes beyond the above aspects and considers issues such as:
Buyer's Experience and Capability: Evaluate the buyer's M&A success rate, strategic fit, industry experience, and capacity to keep your business alive.
Your Role After the Sale: Does the buyer want you to be involved in the business after the sale? How involved will you be? Does the buyer plan to retain key employees?
Contingencies and Risk: Assess the M&A risks each offer might face. A deal with lower risks and a quicker timeline may be more attractive than a higher-risk offer with many conditions.
Even with a good checklist, evaluating various offers on your own can be overwhelming.
You'll want to increase your chances of choosing the best offer that not only has the highest sale price but also ensures the continuity of your business and legacy.
At Exitwise, we help business owners and founders like you sell their business faster and for more money to the right buyer.
Our approach is simple: we help you hire the best M&A experts in your industry, including M&A advisors, accounting professionals, M&A attorneys, and wealth advisors.
These experts possess in-depth knowledge of your industry and extensive networks of pre-vetted and pre-qualified potential buyers willing to pay a premium for the right business.
As much as you want a good buyer and offer, you must also be a good seller who's willing to hand over the business and help the new owner settle in sooner.
Let's see what that looks like:
1. Create a Formal Transition Plan
Have a professional transition plan that includes a transition team, a set timeline, a handover schedule, and clear milestones.
The transition team should include you as the seller, the buyer, key employees, and professional advisors to oversee the entire process.
Manage the timeline in distinct phases, including preparation, implementation, and evaluation.
Your handover schedule should include details on how and when various transition tasks will occur, as well as the specific person responsible for executing them.
You must also set goals and milestones to track progress and address challenges as soon as they arise.
2. Transfer Assets
Ensure that the new owner receives all assets related to the business, including standard operating procedures, systems, intellectual property, vendor lists, and any other relevant details as outlined in your agreement.
3. Train the New Owner and Team
Depending on your sale agreement, you can provide hands-on training and experience to the new owner and their team to ensure they ease into the business within a short time.
You can introduce the buyer to key employees, clients, and vendors to ensure a seamless handover of these relationships.
4. Communicate with All Stakeholders
Announce the change in ownership and management to your employees, vendors, and customers to maintain trust, transparency, and continuity.
Assure each party that issues such as continuity will be monitored and address any other concerns they may have about business operations, roles, and benefits.
5. Offer Continued Support
If your continued involvement is included in the sale agreement, you can offer ongoing support in a consulting capacity or as an employee.
Where you don't have to be involved after the sale, ensure you have a plan for your future to help you exit gracefully and avoid the unfortunate post-exit disorientation.
Frequently Asked Questions (FAQs)
Here's what else you might want to know about successfully selling a business:
How Long Does It Take to Sell a Business?
Selling a business can take a few months to a couple of years. Typically, it averages around 6-9 months, depending on the business's complexity, market conditions, and finding the right buyer.
If You Sell a Business, How Is It Taxed?
When selling a business, the profit is typically taxed as capital gains. The tax rate depends on your tax bracket, how long you've owned the company and its structure. See our complete guide on taxes on business sales.
Who Pays Closing Costs When Selling a Business?
Closing costs in a business sale are usually negotiable. The buyer and seller often share these costs, which ultimately depend on the negotiation agreement.
Do I Need a Business Broker to Sell My Business?
A business broker can be helpful, especially for navigating complex processes, finding qualified buyers, and negotiating deals. Their expertise often leads to a smoother and potentially more profitable sale.
What Happens to Employees After the Sale?
Post-sale, employees may either continue with the new owner, be offered a severance package, or be let go. The outcome depends on the sale terms and the new owner's plans. Communication and transition plans are essential during this change.
Can I Use the Same Checklist For Selling A Small Business Or Franchise?
You can't use the same checklist for selling a small business when selling a franchise.
While some steps may overlap, selling a franchise involves more specific, mandatory contractual and legal obligations to the franchisor.
These obligations require additional checklist items that may include reviewing the franchise agreement, notifying the franchisor, obtaining their consent, and offering them the right of first refusal.
You also have to comply with franchise-specific disclosure regulations in favor of potential buyers.
Conclusion
Our checklist for selling a business is comprehensive. There's a lot you need to cover.
Now that it's time to reap the rewards from years of hard work, don't leave the outcome of your business sale to chance.
Be proactive and choose Exitwise to guide you through this crucial process. We're here to:
Ensure you sell faster and for more money.
Connect you with specialists on how to list a business for sale.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.
