The Ultimate Selling a Business Checklist: A Step-by-Step Guide for Owners

Selling a business can feel as overwhelming as it feels exciting. Once you have decided to sell, you likely have many questions: how to receive a business valuation, what documents to prepare, to use a broker or not, and more. This comprehensive guide turns “how to sell a business?” into a practical selling a business checklist. It complements other posts on due diligence, finding a family business exit strategy, and EBITDA.

Selling a business all starts with preparation. From preparing emotionally to sorting out financial and legal documentation, preparing the right way sets the groundwork for a successful exit. Post preparation, a business valuation readies you to enter negotiations with prospective buyers so you can sell your business for what it is worth. Finally, we touch on the due diligence process and how to successfully close the deal.

Selling a Business Checklist: 8 Essential Steps

Use this thorough selling a business checklist to ensure you are fully prepared before going to market.

1. Are You Really Ready to Sell?

• Have you clarified your reasons for selling?
• Are you emotionally prepared to step away? Or do you want to remain with the business?
• Is the business performing consistently?
• Have you considered timing and market conditions?

Internal readiness is the first step to selling your business. Whether you are business exit planning to pursue a new venture, secure retirement, or pass on the business to a family member, fully understanding your rationale is the first step. Emotional readiness is the second piece. Many business owners are attached to the business they have been integral to for many years and letting go can feel hard.

Private equity recapitalization is one solution for business owners that want to obtain some liquidity and step away in some capacities but also wish to remain involved. In recapitalization, a business owner can have it both ways: sell part of the business, retain some ownership, and continue personal involvement.

There is also the external market to consider. Times of widespread economic decline would be a poor time to prepare a business for sale. It can be helpful to examine recent sales of companies in your industry to get an idea of if it is a fruitful time to sell.

2. Obtain a Professional Business Valuation

• Do you know your EBITDA?
• Have you adjusted for owner-related expenses?
• Have you benchmarked against comparable sales?
• Have you used a valuation calculator or consulted an advisor?

Some business owners may wish to embark on this step in the selling a business checklist before step one. Getting an idea of what your business is worth can help you decide to either sell soon or hit pause and make some business improvements first. Understanding your company’s EBITDA is a core piece of understanding your business’s value: EBITDA multiplied by your company’s enterprise multiple yields a rough estimate of your business valuation. The enterprise multiple depends on many factors such as current market conditions, comparable sales, and the company’s growth potential.

Consulting a trustworthy advisor to obtain a business valuation is key. There are also business valuation calculators available online. Knowing your valuation allows you to only entertain prospective buyers who are willing to pay market value, reducing your risk of selling for less than you could have.

3. Organize Your Financial and Legal Documentation

• 3+ years of financial statements
• Tax returns
• Accounts receivable/payable summaries
• Fixed asset depreciation schedule
• Customer contracts
• Supplier agreements
• Employment contracts and employee organization chart
• Licenses and permits
• Lease agreements
• Appraisal or Valuation (if any)
• Environmental studies (if any)
• Corporate formation documents

This sounds like a lot, but it is important to have these documents ready for buyer scrutiny. You also may want to provide documents on your recent business successes, like positive customer reviews, as well as future marketing plans. This gives prospective buyers a snapshot of your growth potential, which directly impacts company valuation.

In addition, serious buyers will conduct due diligence later to examine your company’s operations in depth. During due diligence, the buyer may request many pages of documents to confirm your company’s historical performance, future performance estimates, intellectual property, and more. Getting a head start on this paperwork boosts buyer confidence and can accelerate the sales process.

4. Clarify Your Exit Strategy

• Are family members involved?
• Have you considered tax implications?
• Are you seeking a full exit or partial sale?

The answer to these questions directly impacts what kind of buyers you will entertain. For example, planning to sell to a family member looks very different from a buyer who wants to absorb your company and re-brand it. As mentioned above, options like a partial sale using recapitalization allow you to get the best of both worlds: stay involved with your company the way you want to and receive capital from a partial sale.

Selling to a family member offers many opportunities but also some complications to consider. Some family exit strategies work great in theory, but the family member who will carry on the torch lacks the finances to allow the previous owner to retire. 1719 Partners works with family-owned businesses to help the owner secure a family business exit strategy that works for everyone involved, so owners can sell without compromise.

5. Prepare the Business for Sale

• Resolve any outstanding legal issues
• Clean and organize facilities
• Repair or replace faulty equipment
• Reduce owner dependency
• Strengthen management team
• Lock in key contracts if possible
• Consider obtaining a sell-side QofE (quality of earnings report)

At this stage, final business preparations take place. The buyer will conduct due diligence before the deal closes, so it is important that the business looks good both on-site and in the paperwork. This means cleaning the premises and locking in contracts for the future if possible. For example, it is better to sign on a new customer now and potentially boost your company’s value than leaving a prospect unclosed.

6. Decide How to Sell the Business

• Does it make sense to use a broker or sell independently?
• Have you evaluated your broker’s experience?
• Does your broker of choice specialize in your industry?

Deciding to sell with a broker or not can be complicated. On one hand, qualified brokers offer industry expertise, an exclusive network of buyers, and the ability to handle complex negotiations. They also help market your business and help structure the deal. At the same time, using a broker is not free and the wrong broker may be more motivated to earn a fee than to find you the right buyer. Learn more about the pros and cons of using a business broker and how to sell a small business without a broker.

7. Prepare for Due Diligence

• Financial audit readiness
• Data room preparation
• Operational review

Due diligence is an essential step of the sales process. While it can be a headache, without due diligence, your business cannot be sold. We wrote this blog to de mystify the due diligence process.

8. Successfully Close the Deal

• Select a purchaser and negotiate a letter of intent
• Complete due diligence
• Negotiate purchase agreement and all ancillary legal agreements
• Purchaser secures required financing
• Plan employee and customer communication and retention
• Close the transaction and execute transition plan

While the six bullet points above sound easy, in reality, closing a transaction is an arduous process that takes approximately 90 days of full-time attention.

Common Mistakes to Avoid When Selling a Business

Following this guide will help avoid common pitfalls of selling your business. When sellers delay preparation, do not gather the necessary due diligence documents, or hide issues from buyers, problems arise. Being fully transparent with buyers from the start helps build trust and minimize transaction issues down the road.

Selling a Business is a Process

Selling a business is not one event, but rather a series of interconnected steps. Reference this guide as you tackle preparations and navigate each stage of the process. If you have any questions on preparation or are curious about the value of your business, contact us. We are always happy to have these conversations.