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INFORMATION YOU WILL NEED TO HAVE

BEFORE SELLING YOUR COMPANY

By Stephen J. Kerr

Gathering together all of a company's detailed business records and history for potential buyers (who have signed iron clad confidentiality agreements) remains one of the toughest jobs that many of our clients face, after having made the all important decision to sell their company.

While each company and situation is unique and we could not hope to cover all of the possible combinations of financial statements and schedules that may be requested by the investors or buyers, Business Marketing Consultants would like to give our clients some clear guidelines as to what is expected in most situations and how to go about organizing this vital information.

The most important documentation to have readily available and organized for review is your financial statements. It is best to have a full 5 years of complete financials ready, including profit & loss (income) statements and balance sheets. Our firm takes these statements and develops side by side spread sheet comparisons so that buyer's can review a company's multi-year performance at a glance.

The next most important information to have available is a sales history on the company. Publishers or video producers will want to set this up by title and give both unit sales and net dollar sales on each book or tape. The root question here is, "Where are your sales coming from?". If your company has multiple income streams from the various divisions or cells within your corporation, you will want to break down your income by source by year. If your company relies on brokers, distributors, reps, outside salesman or other organizations, you will also want to organize your sales data by this source, as well.

A current inventory and accounts payable and receivable aging schedule are a must. Also extremely valuable is a record of the owner's compensation, listing not only the owner's salary(s) but also his/her bonus, pension, life insurance, car, perks and all other company paid personal benefits. This information is crucial in determining what the company's actual cash flow is and therefore significantly influences the purchase price.

A set of pro forma sales and profit projections looking down the road three to five years is also helpful to any buyer trying to decide where their payback is coming from.

Our firm highly recommends that companies with substantial physical assets, such as printing presses, computers, business equipment , furniture and fixtures get a full appraisal done on these assets before putting the business on the market. There is no better way to end a discussion on the value of your equipment and fixtures before it begins than by presenting the buyer with a valuation by an certified appraiser that is knowledgeable about your industry.

Just as you would do for your own business plan, your acquisition prospectus should contain a mission statement that, in a few words, encapsulizes the purpose and direction of the company. We always include a brief but thorough business history on the companies we market. Also prepare a complete marketing plan including, but not limited to your sales organization's make up and compensation plan, sales procurement via advertising, telemarketing, direct mail, internal sales, outside sales, etc.. The buyers will also want to see your current sales literature, catalog and examples of advertising, as well as trade shows attended and what segment of the market you go after. You should also include a brief discussion on what new markets your company could penetrate in the future.

One sensitive matter to deal with is that the buyers often want to have a list of your customers and you may not want them to have it. Only you can decide at what point they may have access to your customer list. If it is no great secret, or if it will not do your company any harm...let them have it.

Before going out to talk to buyers you should gather all of your important contracts and rights into a binder for review. Part of what makes your company interesting to others is its agreements and its obligations. Some of the documents you should have ready access to are leases, notes, liens, loans, agreements, contracts, licenses, employment agreements, and any other contracts or documents that are crucial to conducting your business.

You will need to provide buyers or investors with short resumes on your key managers, the seller and perhaps even the board of directors. A complete management chart, annotated with salaries and job titles, is also welcomed. The contribution made to the organization by key employees and managers may not be readily apparent in resumes or job descriptions and you should point out special skills and contributions being made by those people in your organization.

You may be thinking that this level of business investigation may be obtrusive and dangerous for you to reveal, but in our experience, backed with a strong agreement of confidentiality, you can safely give the buyers sufficient detail to fully analyze the value of your company to themselves or their organization without risking corporate espionage.

If you do not intend to sell your company for many years, so much the better that you start keeping the kind of records now that the buyers will ask for later. There is no benefit to sellers to hold back information and make the buyers pull it out of you piece by piece. The best negotiations are quick and smooth...and you can only negotiate the purchase price when you have provided the buyers with enough information to fully evaluate your company. I always ask my clients, "What would you want to know about this company before buying it?". That's exactly what we want to provide. No more, no less.