What information is needed for a business sale?

Business Valuation, Purchase, Exit & Sale, Limited Company, Sole Trader,

When it comes to preparing for a business sale, it’s essential that you can convince potential buyers of the value it holds. They’ll need to know what return they’ll get on their investment, and be confident that the business will continue to perform as it has to date. In this post, we’ll look at the range of information you’ll want to compile before you start the sale process.

There are various features that will increase the value of any business, and it’s these that you need to prove to realise as much as possible from any sale. Regardless of your current goals for the business, it’s never too early to start to build your portfolio of proof. Having everything prepared in good time makes the business sale process far easier, but will also make thing such as finance applications easier too.

During a sales process, all parties will need to complete due diligence, and have legal representation. Having all of your documentation in order in advance of their appointment will keep your professional fees as low as possible.

What do I need to compile?

1. Copies of all contracts in the business name.

These are important so any future owner knows what they may already be committed to. These commitments can be in terms of finances, but also resources and logistics.

  • Sales.
  • Finance.
  • Purchase agreements.
  • Credit agreements (HP, loans etc).
  • Employment contracts.
  • Service agreements.
  • Insurance policies held including Employers Liability for whole history of the business or 40 years whichever is the shorter.
  • Property agreements, such as premises lease documents.

2. Copies of regular (monthly / quarterly) management meeting notes.

These should contain the discussions on the subjects listed below and prove the business is being managed effectively. They do not need to be in explicit detail, but should allow key decisions to be tracked over time and validated.

a.      Sales.

b.      Marketing.

c.       Finance.

d.      Operations.

e.      Staff.

3. Organisation chart with roles and responsibilities for each member of staff.

This again reinforces the efficient management of the business and of the team any purchaser will be taking over. This enables them to gain an oversight of the quality of the team, any limitations, ongoing concerns or future requirements.

Always aim to include:

a.      Notes of periodic reviews.

b.      Team meeting notes.

4. Budgets

An efficient and valuable business is well managed and has a clear knowledge of its finances and its performance against set goals. Working with realistic Budgets is part of this process, as is managing variations along the way. 

No-one will expect a business to be hitting all budget items consistently, but having a working Budget will provide confidence, and allow a potential purchaser, who may already be operating in a similar market, to compare opportunities. 

5. Notes on strategic / annual planning.

As with Budgets above, a well-run business has set goals and a plan to achieve them. Strategic planning and regular reviews that are documented provide assurance this is a well-run business! 

The frequency and extent of these records will depend on the size of the business. The larger the business, the more frequently these should take place. Aim for quarterly planning notes or six monthly at least. 

6. Marketing and sales plans.

Knowing where sales are coming from, the costs required to generate those sales and the processes that bring them in allows a potential purchaser to predict the level of future sales, from which they will gain the profits, and from which they will recoup their investment. If they are new to the industry, information around seasonal peaks, key dates and target markets will be really useful.

7. Details of any Intellectual Property (IP) held by the business.

Every business has its own IP to some level. Some have extremely valuable IP, which should be trademarked or perhaps patented. This would include proprietary processes, or secret recipes, such as KFC’s 11 Herbs and Spices or the recipe for Coke. It’s these records that would be included here. 

8. Fixed Asset Register.

This can be easily included on your bookkeeping system, and kept up to date across the years. The register lists every asset by category and shows the date of purchase and the accumulated depreciation charge against that asset.

The register also shows the depreciation policy for each type of asset and needs to agree to the accounting policy stated in the financial statements. It includes the value of the assets held within the business and the assets to which any purchaser would gain title at the point of sale. 

9. Full Company Registers.

These should include the following: 

a.      Directors.

b.      Directors Interests.

c.       Secretary.

d.      Share Classes.

e.      Allotments.

f.        Transfers.

g.      Members.

h.      PSCs.

i.        Mortgages and Charges.

j.        Debentures.

k.       Annual and Director meeting minutes.

There are different ways to sell a business, and some of the above may not be applicable to all of them. Having the information in place though before you start the process of a business sale, will streamline the process regardless of the approach you take.

As ever, please get in touch if you’d like any more information around the above, or if you’re considering a sale. The earlier you start to get your plans in place, the easier the process will be. We can help you work through from your initial thoughts to the end result, and empathise along the way having been through both the sale and purchase processes ourselves.

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