Deciding to sell a business in Texas or anywhere else is a major undertaking. In order to maximize your profits and get out of it more than you put in, careful planning and preparation is required. There are certain documents needed to sell a business, and getting them ready isn’t a one-day process.
If you’re thinking about selling your Texas-based business, it’s important to recognize that prospective buyers will want to see objective, clear-cut facts to convince them investing in your business will be a profitable decision. While buyers may be initially attracted to your business for a variety of reasons other than its profit potential alone, their primary interest will undoubtedly be their bottom line.
This means you will need to provide them with solid bookkeeping and highly-organized, comprehensive documentation that clearly shows the historical financial performance of your business and justifies your asking price. If you’re unsure of what your asking price should be, the process can help in this regard as well.
Here are 16 Documents Needed To Sell A Business
1. Profit and Loss Statements
Profit and loss statements, commonly referred to as P&L statements, are financial statements summarizing the revenue, expenses, and costs incurred for the year, quarter, or any specific time period. When selling your Texas business, you should have P&L statements for at least the past two years for buyers to examine.
2. Cash Flow Statement
As its name suggests, a cash flow statement is a financial statement showing how income and balance sheet changes affect the business’s cash and cash equivalents. The statement also breaks the analysis down into financing, operating, and investing activities.
3. Current Balance Sheet
A balance sheet is a financial report showing a business’s assets and liabilities. While you won’t need the balance sheets from five years back, you should be prepared to share your current balance sheet with prospective buyers.
4. Business Tax Returns
Business tax returns not only show prospective buyers the overall revenue generated by the business for a specific fiscal year, but they also show the estimated taxes and other tidbits of information buyers look for. You should have your business tax returns available and ready to share for the past two to three years.
5. Insurance Policies
Buyers will also want to look over any insurance policies currently covering your business, such as professional liability insurance, workers’ compensation insurance, property insurance, and so on.
6. Copy of Current Lease
For many small businesses, leasing a retail or operations space accounts for the bulk of their expenses. A lease can also be restricting, so if applicable, prospective buyers will want to look over your current lease to understand its expense, expiration, and any restrictions or covenants that may be hiding in the fine print.
7. Confidentiality or Non-Disclosure Agreement
A confidentiality or non-disclosure agreement will also be needed to protect your interest and those of the buyer.
8. Buyer’s Personal Financial Statement
A Buyer’s Personal Financial Statement will allow you to screen potential buyers and ensure they have the funds available for the purchase. Providing this up front can help keep tire kickers from wasting your valuable time and prevent an unwelcome surprise come closing day.
9. Employment Agreements
Employment agreements are often transferred from the seller to the buyer, and they can potentially affect the future running of the business from a personnel perspective. If you have any employment agreements in place, you should have them organized and ready for buyers to look at as well.
10. Supply and Distribution Contracts
Similarly, you will also need to have any supply and distribution contracts available for buyers to examine. If you have contracts in place, your suppliers and/or distributors will become the buyer’s suppliers and distributors. This is something they will want to know.
11. Professional Certificates
Any professional certificates needed to run the business should also be disclosed.
12. Executive Summary of the Business
This is simply a written overview of the business. It tells prospective buyers a bit about the business, what it does, how it operates, and what to expect in general.
13. Detailed Description of the Business
Alongside the executive summary, you will need to provide a more detailed profile of the business, breaking down the products, customers, culture, and financials.
14. Purchase Offer Agreement
A purchase offer agreement outlines the proposed terms and conditions of the transaction between the buyer and the seller.
15. Note Regarding Seller Financing
If you have agreed to seller financing and settled on terms, a note outlining the financing terms should also be prepared.
16. Any Additional Financial Documents
Lastly, even with all of the above, you may need to prepare and disclose additional financial documents pertaining to the value, revenue, expenses, and so on of your business.
Well, there you have it. Although more documents may be requested as part of the buyer’s due diligence, these are the primary documents needed to sell a business in Texas.
Taking the time to organize the right documents will showcase your business as a sound investment, make it more appealing to buyers, and help you avoid any unnecessary stress. Not only will prospective buyers be impressed with your well-managed business, but you’ll be able to use the data you have collected to increase its value and receive an offer you deserve.