Preparing Your Business for Sale: Key Steps Before Seeking a Buyer
Selling a business can be one of the most important and rewarding decisions an owner makes. Whether you are planning to retire, pursue a new venture, or simply take advantage of market conditions, preparation is critical to maximizing value and ensuring a smooth transaction. Taking proactive steps well before you begin marketing your business for sale will help avoid pitfalls and increase buyer confidence. Below are several key items to consider before offering your business for sale.
1. Consider a “Home-Grown” Succession Plan.
Often, the best “buyers” for your business are the people who have been working for you and are familiar with the business’ daily operations and its customers or clients. Speak openly with your key employees about your desire to transition away from daily operations, and how this creates a unique opportunity for them. If one or more of your team expresses an interest in acquiring the business, now or in the future, you should begin to share more details with them about the business as well as the challenges and benefits of owning the business. By gradually delegating more “owner” tasks and responsibilities, you’ll be able to gauge whether or not the proposed successor has the right mindset to take on the risks of ownership versus staying in the “paycheck comfort zone.”
2. Organize Your Financial Records.
Knowledgeable buyers will expect clear, accurate, and complete financial information for the business. At a minimum, be prepared to provide three to five years of financial statements and tax returns. Work with your accountant to ensure these records are up to date, consistent, and professionally presented. Clear and accurate financial and tax records, returns and reports demonstrate credibility, facilitate a buyer’s due diligence inspections, and better support a realistic asking price.
3. Resolve Legal and Compliance Issues.
Outstanding legal issues can create uncertainty and reduce value. Before going to market, review your corporate documents, contracts, leases, employment agreements, intellectual property registrations, and any pending disputes. Addressing compliance matters in advance — such as ensuring licenses are current or resolving regulatory inquiries — reduces the risk of delays or renegotiation once a buyer is identified. A legal audit by your attorney can help uncover and resolve these matters early.
4. Streamline Contracts and Agreements.
Buyers will closely examine your key contracts with suppliers, customers, and employees. Review these agreements to confirm they are in writing, enforceable, and assignable to a purchaser. If important relationships are based on informal understandings, formalize them. Strong, transferable contracts help assure buyers that the business can continue operating smoothly after the sale.
5. Protect and Document Intellectual Property.
For many businesses, intellectual property — such as trademarks, copyrights, patents, trade secrets, or proprietary processes — represents a significant portion of value. Confirm registrations are current, and ownership is clearly documented. Before sharing private and sensitive information about the business, the business should enter into a confidentiality, non-disclosure and non-solicitation agreement with the prospective successors or purchasers. Consider implementing such agreements and, subject to advice of legal counsel as to ever-expanding statutory restrictions, non-competition agreements with current employees and contractors if not already in place. Buyers will look for certainty that intellectual property is fully protected and will transfer with the business.
6. Address Operational Weaknesses.
Take an objective look at your operations. Are there areas that could be improved to make the business more sustainable? This may include upgrading systems, diversifying the customer base, or reducing reliance on a limited number of vendors. The more stable and scalable your business appears, the more confidence buyers will have in its future performance.
7. Assemble Your Advisory Team.
Selling a business involves legal, financial, and tax considerations that are best navigated with professional guidance. An experienced attorney, accountant, and business broker or investment banker can work together to help you prepare, market, and negotiate the sale. Having an experienced team in place early provides both protection and leverage throughout the process.
Conclusion
Preparation is the foundation of a successful business sale. By organizing your financial and legal affairs, addressing potential red flags, and presenting your business in its best light, you increase both its value and marketability. Starting this process well before you approach potential buyers will save time, minimize surprises, and position you for a smoother, more profitable transaction.
If you have questions or would like assistance preparing your business for sale, please reach out to Brian Kotzker at (301) 634-3138 or bkotzker@sgrwlaw.com. A fifth-generation Washingtonian, Brian combines a CPA background with nearly three decades of legal experience to guide clients through business and real estate transactions across Maryland and the District of Columbia.