1. HISTORICAL FINANCIALS

Selling a company or firm is mainly based on the financials of the firm. This is a critical aspect of showcasing how well or not your company has done over the years.

This is what sellers have to showcase, so as to improve their selling chances. Buyers typically want to see at least 3 years of historical financial information.

This is somewhat of a scorecard that gives a good indication of past performance and how the company has or has not grown over the years. Even if the seller experienced a ‘not so good year, there might be a rationale behind the cause which should be highlighted by the seller. Any discussions should be highlighted which are happening with management to present the financials.

2. FINANCIAL PROJECTIONS

In this step, the seller should want to highlight the best guess and selling points, based on customer feedback, current sales activities, pending contracts, or growth trends, and where the company is going to be for all the line items of the sellers’ financial statement.

This is a forward-looking scorecard for predicting future performance. Which ‘no doubt may or may not provide hope to potential buyers of your business. A separate post would be provided on this as well, which would get into lots more detail as to how financial projections should be done properly for the average seller, selling a business.

3. COMPLETED TAX RETURNS

In this item it goes without saying, no one wants to be looking at a company that is indebted to the government. This is a risk no investor wants to acquire. Therefore this is something sellers should disclose upfront. It just makes the process smoother and retains trust.

No one wants to spend a whole bunch of time talking about all the wonderful things about your company, to then find out that your company hasn’t been paying its taxes. That’s a deal killer right there for any seller! Imagine selling a company without its taxes completed?

Yes, some people may be reserved about this because it has your personal information in there, but sellers have to take into account that they are trying to sell something a product which is essentially an investment.

So even if the seller doesn’t want to provide the actual documentation upfront it would be good to at least ensure that you have them readily available for disclosure when the discussions prove serious with a buyer.

4. CORPORATE DOCUMENTATION

Another aspect of selling a business is where buyers and sellers are going to be dotting their I’s and crossing their T’s.

Buyers are always on the lookout for a good business opportunity and good sellers to buy businesses from. Therefore time preservation is key. No investor wants to waste time looking at opportunities from sellers that aren’t set up right with their government and state.

So these documents need to be ready to go at a moment’s notice.

5. CAPITALIZED STRUCTURE

This may not apply to a sole proprietor or a one-man LLC with no real investment into the company, but for LLC’s and Corporations with real investments or capital structure, whether it’s from you the seller, friends, family or institutional investors, or the bank, buyers will want to know what and who they are dealing with here.

Selling your company in some cases can get problematic with partners and co-investors if everyone is not on the same page with the sale of the company. So when selling your business, be sure to have this information readily available so it’s clear to buyers who are involved in the process of selling the business.

Again, just another upfront precaution for both the seller the buyer, and the seller’s partners or financiers.

6. PRODUCT OVERVIEW

Most sellers should be able to provide this information as it is usually what all sellers know best. A nice summary of the products or services the seller provides, and how they solve customers’ problems. This is great information for the seller to provide, as it makes selling the business much more attractive.

Also merging it with how it’s a value-added proposition within your industry is also compelling for buyers to know.

7. SUPPLIERS AND VENDORS

Suppliers and Vendor information is also great information to compile as it indicates any concentration there may be as well as any room for efficiencies that can be added to strengthen the supply structure of the business.

logistics, supply chain, technological and pricing factors can be built up more robust depending on the right buyer stepping in. So this would be a good time to showcase any advantages to the way you do business to entice buyers to your business.

8. BUSINESS MODEL

A Business Model simply explains in a structured way how the company does business. Meaning, illustrating such things as the industry you are in and how you are serving that industry which is formatted in a way that is easy to understand.

Here you would want to showcase how the different aspects of your business are linked and the trickle-down effect towards providing a solution to your customer’s problems such that you make a profit.

Needless to say, this has to be concise, very summarized, structured, and well-formatted for the buyer to grasp quickly.

9. CUSTOMER CONCENTRATION

A typical sticking point for most buyers looking for good businesses to acquire. Customer concentration is your list of customers or clients as it relates to your revenue and the distribution of customers as a percentage.

This means that if you have 10 customers with $5,000,000 in revenue with 1 customer providing a revenue stream of 25%, then that customer is responsible for $1,250,000 of revenue. In a case where you lose this customer, it can be detrimental to the business if your Net Profit is 15% of that revenue ($750,000). You’d be at a loss of $500,000.

Therefore this needs to be understood prior to thinking about your valuation as well. I have seen where some companies have 25%, 40%, 60% even 75% customer concentration and because they may be a ‘big name’ client or customer they somehow think this is a good thing. From an investment perspective, it truly is scary.

So be careful with this one and be prepared to fully explain your customer concentration as it varies from industry to industry and buyer to buyer.

10. MANAGEMENT TEAM BIO

People run businesses. They don’t run themselves. I don’t care how Sophisticated the business is. Buyers want to know about the Management team and their background.

Whether they are competent and qualified to do the job or whether they need some extra hands on deck to get the thriving. People are the key to the longevity of any business and ultimately are the ones who would be managing the affairs of someone’s new investment.

So don’t view this as an additional burden. It’s well worth your while if you do have a team worth boasting about to do so. If you don’t, then I am sure you have a compelling story as to how you achieved all that success without a great management team.

11. SALES TEAM BIO

Just like the management team. A sales team is usually critical for most businesses and buyers want to know what and who is driving all that revenue. So it’s very helpful to know the experience, qualifications and training levels of your sales team.

A sales team is one of the most important parts of a business if not the most important part. This is the engine of your business and a buyer is going to want to inspect it.

Save the anticipation and prepare a summary of these biographies. it will be impressive to a buyer to know you are trying to provide as much pertinent information as possible.

12. COMPENSATION STRUCTURE

Here is another area where you may want to be cautious about providing this information upfront. But ensuring that it has already been prepared and formatted for communication with a buyer would show your seriousness about selling.

Salaries and compensation are usually the largest expense for any company and for some businesses that are very straight forward this area may not be applicable.

For companies with incentive plans, commission structures, phantom equity, or ESOP’s for sales teams or staff in general. You will want to indicate this to buyers as part of proposing the business for sale sooner than later. So they know what they will be getting themselves into.

I’ve seen where random information that should have been shared earlier, pop up and kill deals after a lot of time and effort has been invested.

13. MARKETING STRATEGY

Understanding the marketing strategy for a firm is key for an investor or buyer. It tells them the mindfulness of the owners and management team regarding maintaining stable pipelines of business as well as whether the company has stalled for growth or planning to grow rapidly.

This is important because it is an indication of future working capital, needs. This is critical for buyers to plan for when looking at a business for sale.

It surprises me sometimes when companies can’t provide a 5 liner on what their basic marketing strategy is, or going to be. I am not saying do a 40-page marketing plan here. Sometimes a 5 liner works. Buyers ultimately want to know that they are investing in people who are constantly thinking about moving the company forward.

14. SALES STRATEGY

Your sales strategy maybe a 5 liner but usually might be more as it speaks to your lead generation process (how you source and interest customers), pipeline (how many customers you have interested and the quality of customers), conversion process (how you convert the pipeline to dollars), staffing process and more. But usually, these are some key items in your sales strategy.

Buyers need to know this so as to know the current sales capabilities of the company they are attempting to purchase. Unless a buyer plans to buy a company so they can sell everything themselves they would want to know what the company has in place to continue generating revenue and whether there is a method to the madness.

15. GROWTH STRATEGY

The growth strategy ties the marketing strategy, sales strategy, financial projections, and business model together. This way it all makes sense to the buyer and the company doesn’t seem scattered in its thinking.

It shows a clear path to the projections and its working capital needs to get there. It tells a story that is well-rounded and allows the buyer to get into the minds of management but to also see where the buyer themselves can be of added benefit to the company and help in this process.

Many buyers have growth plans of their own and want to ensure there are no conflicts of interest between them and the company.

In Closing 

This may seem like a business plan which I know a lot of people are wary of doing, but it is not. It’s different. It is the critical aspect of a CIM (confidential information memorandum).

Which an advisory firm or investment bank puts together for sellers. Here we are trying to cut through the noise where that is concerned and empower you to do it yourselves because it is pretty straightforward to comprehend.

Sometimes people do need help with this and should seek advice where applicable or burdensome. Though it’s always good to cut through the noise and deal with buyers directly. Save you time, money, and stress.