What Financial Records Will I Need to Share to Sell my Business?

What Financial Records Will I Need to Share to Sell my Business?

Working at Transworld we have discussions with sellers on a daily basis. Inevitably the question of, "What financial records will I need to share to sell my business?" arises. In my experience sellers are cautious about with whom they share their financial records and at what point in the process this will take place. To begin allaying the Seller's trepidation and before reviewing any documentation Transworld will sign a Confidentiality Agreement (CA). The CA binds Transworld to keep all of the seller's personal information confidential. Confidentiality is valued above all at Transworld and is a key aspect in each and every one of our business sale transactions.

Upon first meeting with a seller, it is necessary and typical to discuss the valuation of their business and how much a company is worth, as this information will be used to ultimately calculate an asking price. If the seller has access to their total sales and earnings from the year prior or of the year-to-date then this information will likely suffice to calculate an estimated valuation. To deduce the true Seller's Discretionary Earnings (SDE) number for the business valuation, Transworld will require Profit and Loss Statements (P&L) or previous year's tax returns. These documents will outline the businesses revenue, earnings and deductions. These three numbers can then be used to calculate the SDE.

Following the signing of the CA, Transworld will have the seller sign a Marketing Agreement (MA) so we can begin the real process of selling their business. Now that the MA is executed, we will collect further information from the seller. This process involves the completion of a Seller Interview (SI) by the seller. The SI is a list of questions concerning the business to help in the development of an Executive Summary (ES), which is a short briefing on the business for sale. At this point in the process Transworld will ask for three years of P&Ls as well as tax returns. These documents are required to aid the process of getting lender pre-approval for the business. Transworld will also collect balance sheets and a copy of the business lease.

While providing numerous additional financial records to Transworld, it is at this time the seller again becomes nervous over who is going to see their information and when. This is why Transworld structures our deals to best protect our client, the seller. We collect all of the financial information and create a brief, one page recast that shows the SDE calculation and the general financial numbers. We then use this recast to share with pre-qualified buyers during their business investigation process (after execution of a Non-Disclosure Agreement). No other financial report is shared with a prospective buyer until after a Letter of Intent to Purchase (LOI) is signed by both the seller and the buyer.

Once the LOI is signed and a down payment is placed in an escrow account, the deal moves into Due Diligence. It is during Due Diligence that the buyer will be allowed access to the seller's data. The buyer uses this information to confirm they would like to move forward with the transaction and a Contract to Purchase is signed and the deal is closed! The moral of the post is this: confidentiality is critical to the Transworld selling and buying process. This means we make every effort to assure the seller that their information is safe and will only be disclosed properly and at the correct time in the process. In addition to this, Confidentiality Agreements and Non-Disclosure Agreements keep all involved parties bound to privacy.

For more information on Transworld's selling process or for a free business valuation workbook head to our websiteTo speak with one of our team members about how we can help you...

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Chris Cantwell brings 20 years of small business experience to Transworld via the restaurant industry. While Chris is diverse in working with all industries, restaurants, hospitality and franchises are his areas of added expertise. He is a member of the Colorado Restaurant Association keeping him up to date on the pulse of the industry.