selling a business
Small Business

How Companies should Prepare for Selling a Business

Before selling a business, there are many items you need to review.

When a company is ready to start the process of selling a business, the last thing it wants is for things to go wrong. But unfortunately, many sellers make mistakes that can cost them time, money, and even the sale of their business itself.

To ensure that doesn’t happen, it’s essential to do the proper homework. One must also prepare well before putting a business on the market. In this article, we will discuss some of the most critical steps to take so that a seller can maximize its chances of a successful sale.

Create a Checklist

Before taking any steps to sell, a seller must create a detailed “selling a business” checklist of all the actions that need to be taken. This should include everything from legal and financial requirements to marketing, sales, and negotiation tasks. Having these items written down will help keep the seller organized and ensure that nothing is overlooked.

The best way for a seller to organize this list is to break it down into specific tasks. Deadlines should be assigned for each task as well. For example, the seller might break down the task of updating financials into obtaining updated tax returns, P&Ls, accounts receivable and accounts payable reports, and bank statements.

Gather Financial Records

One of the most critical aspects of the process behind selling a business is the financial due diligence that the buyer will conduct. A seller must ensure that all its financial documents and records are up-to-date, accurate, and complete.

This includes financial statements, tax returns, customer invoices and contracts, account receivables, accounts payables, and bank statements. In addition, all of these documents should be organized in a manner that is easy for the buyer to understand. This way, the buyer can quickly assess the business’s financial health.

Update Operating Agreements

For any business with a multi-member ownership structure, it is essential to ensure that the operating agreement or other governing document is up-to-date and properly executed. This is imperative when thinking about selling a business. Any of such agreement should include provisions that address how a business is owned, managed, and transferred in the event of a sale.

One of the pitfalls for a seller is to assume that the existing operating agreement will be enough for the sale. However, it’s essential to ensure that all of the owners agree and that the operating agreement accurately reflects the terms of the sale.

Clean Up Unnecessary Contracts

A seller should review all its contracts to ensure they are current and up-to-date before selling a business. All expired, obsolete, or unnecessary agreements should be terminated or renegotiated. Doing this is essential because buyers want to ensure unnecessary liabilities or obligations don’t weigh down the company they are buying.

For example, if the company is paying for services it no longer needs, the buyer may want to get out of those contracts. This can help them reduce costs. In addition, the buyer will want to ensure that any contracts the company has with customers, vendors, or suppliers are current and up-to-date.

Update Intellectual Property

The seller should review all of its intellectual property (IP). This can include patents, copyrights, trademarks, and trade secrets. It is important to review them as it can help ensure that they are appropriately registered, protected, and free of any potential disputes. This must be done prior to selling a business.

Sellers should also review all contracts and licensing agreements related to their IP and ensure they are up-to-date. Doing this will help ensure that the buyer gets all of the rights to the company’s IP they are expecting.

Update Insurance Policies

The seller should review the company’s insurance policies. This can help ensure they are up-to-date and provide the proper coverage for the company’s risks. The buyer will want to ensure that the company is adequately covered for liability, property damage, and other threats that may arise after the sale.

The buyer will also want to make sure that any insurance policies the company has are transferable to the buyer. Not having the proper insurance coverage or mobile policies could be a deal-breaker for many buyers.

Prepare Employee and Non-Employee Agreements

Prior to selling a business, the seller should review all its employee agreements. It should also review any non-compete agreements, consulting contracts, and independent contractor agreements. These agreements must be up-to-date and properly executed.

The buyer will want to ensure that any liabilities resulting from these agreements are addressed. They will also want to make sure the company is not exposed to any potential legal risks. The buyer will also want to make sure that any employee and non-employee agreements are transferable to the buyer.

Assemble a Due Diligence Package

The seller should compile a “due diligence” package. This package should contain all the documents and information the buyer needs to review to evaluate the business. Items included may be financial statements, tax returns, contracts, leases, licensing agreements, and employee agreements. Other items may include non-competition agreements, customer lists, and other relevant documents.

The due diligence package should be easy for the buyer to review. A comprehensive, organized due diligence package will help the buyer decide whether or not to purchase the business.

Execute Key Agreements

A seller should ensure all key agreements are correctly executed. This includes agreements between the seller and buyer. It should also include any other parties involved in the transaction, such as lenders or investors.

The terms of these agreements should be spelled out. In the end, all parties should sign off on them before the transaction is finalized. Doing this will help ensure that all parties understand their obligations and agree with the terms of the sale.

Thing to Know Before Selling Your Business – Summary

Selling a business can be a complicated process, but preparing for the sale properly will help ensure everything goes smoothly.

By reviewing and updating contracts, intellectual property, insurance policies, employee agreements, and other documents; assembling a due diligence package; and executing key agreements, the seller can help ensure that the sale goes off without a hitch. With the proper preparation and guidance, selling a business can be an exciting and rewarding experience.

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