The Succession Advisor: 24 docs you need to sell a business

April 23, 2023 4:46 PM

For Sale sign on hardware store - business

If you or a client of yours is planning on selling a company, here are 24 documents you're going to have to show to any prospective buyer. Are you prepared?

I'm betting you've got most of this information stored somewhere, but in various places. This is pretty normal. My recommendation is to hire a college student or designate a staffer to gather everything together and store it in a secured place online — even on Dropbox, OneDrive or Google. Ensure that once all of these documents are uploaded that someone in the organization is responsible for keeping them current. Then when a prospective buyer requests this information, they can be given access to the folder.

Having this done in advance not only makes an organization look like it's got its act together to that prospective buyer, but is probably something they should be doing anyway, right?

1. Three years of tax returns

Michael Nagle/Bloomberg

That's federal, state and local. These are even more important if the company's financial statements aren't at least reviewed or audited.

2. Two years of financial statements

The most comfort a company can give to a prospective buyer is to show them audited financials. Getting the financials reviewed by an independent CPA firm is also helpful if the company doesn't want to pay for an audit.

3. Building or office lease

andia-faith/andiafaith - stock.adobe.com

Companies should also consider introducing the buyer to their landlord, because the landlord is a partner in this transaction too.

4. Equipment leases and maintenance agreements

andia-faith/andiafaith - stock.adobe.com

Make sure all the agreements are current and disclose all costs.

5. Business formation documents

This includes articles of incorporation, bylaws and all minutes of the board.

6. Inventory list with value detail

Above view of people working in large warehouse, counting goods on moving cart between shelves with packed boxes

pressmaster - stock.adobe.com

All items as of a recent date, along with quantities and costs. If the company hasn't taken a full inventory recently, it should do that too. All amounts should be at cost. Let the appraiser worry about assigning a fair market value.

7. Outstanding loan agreements

This includes all debt with any bank and covenant requirements.

8. Asset depreciation schedule from tax return

All fixed assets that have any value should be here and agree to the listing on the company's tax returns.

9. List of fixtures, furnishings and equipment

THAM KEE CHUAN/ThamKC - stock.adobe.com

This should include value detail, and would include anything not on the asset schedule above.

10. Business licenses, certifications, permits and registrations

Any and all documentation the company has received from state, city and local authorities granting permission to operate the business.

11. Insurance policies

nito - Fotolia

The company's most recent and current business policies, along with premiums and deductibles. This includes health and worker's compensation.

12. Proof of ownership of patents, trademarks and other IP

Old-fashioned patent illustration (bicycle and others)

Arkady - stock.adobe.com

Any intangible asset owned by the company, including intellectual property, should have documentation supporting its existence.

13. Description of liens

Any lien placed on the business or property, whether satisfied or not, should be listed.

14. Product/service description and price lists

If not already included in the inventory list, a detail of every product and service the company sells, along with prices, fees and rates it charges.

15. Supplier and distributor contracts

This includes open and prior purchase orders and any correspondence confirming prices, deals and other arrangements made.

16. Client or customer list and major contracts

Hopefully the company is keeping this in its accounting or customer relationship management system.

17. Marketing materials

Most of this should be publicly available on the company's website.

18. Staffing list with hire dates and salaries

This should also include contact info, position and any other pertinent information about the employee.

19. Employment agreements

All contracts the company has with executives and key managers that stipulate compensation and other terms of employment.

20. Employment policy manual

This would also include a listing of all benefits offered to employees.

21. Organization chart

All companies have a chart that shows the chain of command from the CEO to staff level.

22. Business procedures manual

Other than HR policies, the company may have other written policies that document internal controls, processes for ordering and procedures for handling certain transactions.

23. Photos of business

Matt - stock.adobe.com

These are generally exterior and internal shots that the company has provided to its insurance company.

24. Other documents unique to the business

Correspondence with outsiders, internal memos, bank statements, emails, texts and anything else the buyer will need to know. Also copies of documentation for retirement and other benefit plans.

Note: I'm ignoring what documentation the company needs concerning its technology platform, databases, software and licenses. That'll be addressed in a future post.

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