The Ultimate Selling a Business Checklist

Making sure you’ve covered all the bases when selling your business is challenging. You might struggle to find clear guidelines for the sale process, with checkpoints and steps to follow. Rest assured, we have the selling a business checklist. You can download it right now or keep reading to learn how.

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Selling Business Checklist Contents

• Exit strategy

• Business sale process

• Keep your plans to sell quiet and private

• Understand your business’s true profitability

• Determine the business value

• Get an appraisal

• Clarify the reason for your business sale

• Organize your financial records now

• Organize your legal documents

• Assemble a transactions team

• Find the right buyer

• Spend your time with buyers wisely

• Plan for a smooth transition

• Last but not least, keep an eye on the ball

• Frequently asked questions

• Remember your reason for selling 

Exit strategy

It’s essential to develop a plan to have a successful sale. Your company will attract the best potential buyer because you’ve done the work upfront: from identifying potential buyers to cultivating relationships and preparing the business for sale from the get-go.

Your exit strategy relies on data you’ve collected since you started your company. Data helps decision-making for both you and a potential buyer. You know how to determine its market value and have data on sales of similar businesses.

To ensure a smooth transition, outline reporting relationships. Prepare succession agreements early. New leaders can keep their foot on the gas if they have a succession plan, ensuring revenue doesn’t dip during the transition to new ownership.

Business sale process

Once you decide to sell, it’s normal to want to hurry to finish the sale. The average time to sell a business is 6 to 9 months, a number influenced by many factors such as buyers’ personal finances and investment opportunities, lending policies, financing options, the stock market, and the general state of the economy. Set realistic expectations and learn how long each step in your plan might take.

Learn the transaction timeline – Download our Guide

(1) Finding a broker or M&A advisor and a transaction lawyer takes one to two weeks.

(2) An in-depth valuation can take up to four or six weeks.

(3) Marketing can take anywhere from one month to a year or longer.

(4) Negotiations could take up to four weeks, depending on the number of serious buyers.

(5) Put 2-3 months into your timeline for your closing to account for compliance, financing and the closing documents.

Keep your plans to sell quiet and private

Unlike other sales your company makes, selling your business is one you can’t afford to publicize. Employees might leave for more secure jobs, customers might wonder if they’ll lose the relationship they’ve relied on, the competition will be sure to pursue them, and creditors could change their terms.

Understand your business’s true profitability

Cash flow

A company needs to have enough cash on hand to cover current expenses, and it’s essential to estimate how much cash it will make in the future. But when you go to sell a business, you need to be crystal clear on how much cash flow this business can generate so that you can:

• Present a compelling picture to a buyer;

• Calculate the fair market value of the company; and,

• Know your walk-away price – the price where it’s not worth it for you to sell.

Seller’s discretionary earnings are the business’s pre-tax earnings

It would be best if you also calculated Seller’s Discretionary Earnings (SDE). This is the amount a single owner-operator expects to make in one year. It is generally calculated as EBITDA (earnings before interest, taxes, depreciation, and amortization) plus the value of owner compensation for one full-time owner. This metric is often used in transaction conversations surrounding smaller businesses, and it is good to have this calculated in advance.

Determine the business value

Fair market value is the price most buyers would be willing to pay if they had all the information available. Value is different than the ultimate purchase price. Before taking a business to market, you first need to determine the value as it serves as a starting point to compare against offers you receive.

Asking price

The asking price is based on the valuation and is influenced by current market expectations. Depending on how you sell your business, you may or may not set an asking price. Business brokers list asking prices on their websites, so you would set an asking price if you hire one. Setting a purchase price sets up a scenario where buyers then negotiate downward. Most businesses sell for about 87% of their asking price.

The seller doesn’t set an asking price in more significantly large transactions when sellers choose not to use a broker. Instead, they solicit offers. When you solicit offers, you are more likely to get bids that exceed the asking price, allowing you to negotiate upwards rather than defend downward pressure on the price.

In either case, having an idea of the price you are seeking is a prudent step in selling a business.

Get a business valuation (aka appraisal)

Selling your business relies on knowing the market competition, your company asset values, and income values. There are many subjective factors in a professional business valuation (also called a business appraisal valuation) and hiring a third party to perform the appraisal provides you with an unbiased option.

Maybe selling for profit has always been a goal, and you planned to sell from the beginning. Try writing a statement about the reasons behind selling your business. Some common causes include feeling burnout or the death or illness of a business partner.

Clarify the reason for your business sale

Clarifying your reasons for selling your business might reveal conflicts with your hoped-for outcome. You might hope for an immediate, all-cash sale at a high selling price, but the marketplace may not provide that. Being clear on your reasons for selling will also help you decide how to proceed if the offers you get for the business don’t meet your walk-away price.

Organize your financial records now

Financial statements

Financial records like profit and loss statements show whether or not your company made money over a period of time, such as a year, and which expenses or income were most important. A balance sheet shows your company’s current financial situation, including what you own and owe. A cash flow projection shows your company’s short-term revenue and expense potential. A buyer often places more weight on financials that have been examined by a qualified accounting professional.

Tax documents, including tax returns, government notifications and IRS transcripts

Your tax returns are objective legal proof of your business’s earnings. A potential buyer will want to see your company’s gross sales and net profit or loss on federal tax returns. I would assemble the last 5 years of tax documents to be safe. It can take time to gather all these documents, so best to start in advance, so you’re not scrambling during the due diligence phase.

Organize your legal documents

Lease agreements

Your lease agreement explains your rights and obligations and the landlord’s rights and obligations. A lease typically details restrictions on use (the occupant must be a business) and any right to extend the lease for another period.

A buyer will need to see rental contracts that cite your business location, state the rent, and describe late payment penalties or termination policies for non-payment or breach of contract. But most importantly, the lease will indicate whether or not a buyer of a business can stay in the current premises after the transaction.

Business licenses

When preparing your business licenses as part of your selling business checklist, ensure all permits and licenses are current and transferable to prospective buyers, as outdated or non-transferable licenses can delay or derail a sale. Your business broker will need documentation showing your business is properly licensed and in good standing with all relevant authorities, as this provides buyers confidence that the business can continue operating smoothly under new ownership.

Other legal documents

• Copy of the current lease

• Insurance policies

• Non-disclosure/confidentiality agreement

• Lease transfer agreements

• Key employment agreements and employee benefit plans

• For a complete list of legal documents, checkout UpCounsel’s legal Due Diligence Checklist

Assemble a transactions team

Consult your financial advisor and plan for taxes!

A tax-focused financial advisor works closely with you to minimize the IRS’s cut. Selling some business assets results in capital gains (more favorable) and some in ordinary income taxes (less profitable). Depending on your unique tax situation, you might consider changing your business structure before a sale. 

Work with a tax advisor when putting your business up for sale. The advisor will also remind you about state taxes owed on the sale. A buyer often places more weight on financials that have been examined by a qualified accounting professional. The advisor will also remind you about state taxes owed on the sale and whether there is an advantage to selling the assets or the shares.

Do small business owners need a business broker?

We go into the pros and cons of working with a business broker in this post, but in terms of this selling a business checklist and assembling a transactions team, most small business owners will either:

• Engage a business broker or M&A advisor; or

• Decide who internally will:

  • Assemble marketing materials for buyers to solicit offers

  • Assemble the company’s documents in the data room

  • Reach out to potential buyers

  • Coordinate the receipt of offers

  • Manage negotiations of the letter of intent or term sheet

  • Stickhandle requests the potential buyers have from management

Engage a merger & acquisitions advisor

M&A isn’t only for large-scale or multinational businesses with millions to spare. M&A agreements can be, especially for SMEs. The advisor helps make sure you accurately set your company’s value and:

• Navigates transaction obstacles during the sales process

• Provides access to a larger pool of prospective buyers

• Manage negotiations to avoid leaving money on the table

• Acts as a go-between the buyer and seller during the business sale

• Tries to maximize transaction value

• Prepares you for the next steps with their understanding of the buying and selling process

• Keeps the transaction process moving forward and on pace

Engage a transaction lawyer

Hiring a business lawyer to assist with selling your business can make the process less stressful and increase the sale price. The lawyer represents your interests and checks all paperwork. You should always have the purchase and sale contract reviewed by a lawyer before signing.

An attorney’s duties can include negotiating, drafting, and reviewing all relevant agreements you will sign, from a letter of intent to the transfer of ownership.

The lawyer makes sure that you walk away from selling your business with no unforeseen liabilities and as much of the money you intended to walk away with as possible.

Find the right prospective buyers

Make connections. It’s all about who you know and who knows you. Make early connections. A buyer isn’t always who you expect.

Start a shortlist of potential purchasers and reach out to each—network by asking your contacts for in-person introductions. Try phone mentoring, semi-regular dinners and coffee dates, or sporting events. To make a deal on the best terms, you need to know, like, and trust each other.

Keep the buyer informed. Stay on top of your potential buyer’s expectations by keeping them informed of your progress.

If you’ve hired a banker or a broker, they can help make introductions.

Ask your board (if you have one) for discrete recommendations. Who you appoint to your board can also help (or hinder) your company’s sale. Who do they know who will invest or buy?

Use an online listing site to sell your business. These sites are marketplaces for buying and selling businesses. Sites start at around $50 per month and often sell a la carte resources like marketing tools or pricing information. A seller can use a template to create an ad, and a buyer can browse the site or search by location, industry, price, and other criteria.

Selling your business to a partner or employee is the simplest way to transfer ownership. They already know the industry and have an interest. But someone you know may expect a “deal” from you. If you’re selling your company to a friend, a business valuation can help you stand by your price.

Spend your time with buyers wisely

Determine how much time you can spend with a buyer without losing productivity. Place a high value on your time, and the buyer will respect those limits.

Screen buyers quickly. Keep things brief yet legally enforceable. Have interested parties sign an NDA and use it to learn more. Determine their net worth, their business’s access to capital, and how much liquid cash they have so that you can assess their ability to fund the transaction. This is a simple and effective way to sift out the timewasters.

You can respond to a simple question by email, but schedule a meeting instead of emailing back and forth if the potential buyer has many follow-up questions. You have a list full of information about your company to send to interested buyers at a moment’s notice.

Remember that a serious buyer will usually make an offer after only a few meetings.

Plan for a smooth transition

Have individual strategies for each part of your company: sales, marketing, operations, technology, finance, and legal. Involve employees: allow them to refresh their roles and put together the new org chart.

Prep your leadership team for a smooth transition. Strong leadership teams will stay with the company throughout the transition period. Consider offering incentives that last through the end of the transition to keep employees focused on work.

Plan the transition with the buyer. Together, figure out how you will tell customers, suppliers and financial partners.

Lessen the reliance on you. Many business owners are proud to be the top revenue generator. The business must become less dependent on you to drive a growth strategy truly. Be ready to let go.

Last but not least, keep an eye on the ball

All of the above takes a lot of time and is very exciting, but the worst thing an owner can do is get distracted by the transaction process to the detriment of their current operations. Sales can dip, fewer proposals go out, and costs can increase, all of which cause EBITDA and the ultimate transaction price to go down.

Keep your eye on the ball and your foot on the gas to ensure a great financial year.

Frequently asked questions

The most common questions I get asked surrounding selling a business are: 

What paperwork is needed to sell a business?

• Non-Disclosure Agreement (NDA)

• Personal Financial Statement from the buyer

• Offer to Purchase Agreement

• For a complete list of legal documents, checkout UpCounsel’s legal Due Diligence Checklist

What do you sell when selling a business?

This can vary from transaction to transaction, so it is best to nail down all of what is being sold. There may be real estate or redundant assets in the business that are not contemplated as part of the sale. Redundant assets are assets that are not required for day-to-day operations.

An example could be excess cash or investments in your business that are unnecessary for operations. Another example could be a car in the business; is that car necessary for operations, and is it a legit company car? Or is it actually a personal expense of the company? 

What happens to cash when selling a business?

Again, this depends. Most buyers assume a normal level of working capital will be retained in the business. However, there are some transactions where all the cash is stripped out of the company. This is a point of negotiation. Remember to factor in any necessary working capital infusion when analysing a proposed purchase price.  

Remember your reason for selling 

We hope this article helps you refine your exit. There are many moving parts from the sales process to determining your company’s value. You know to organize your documents, plan for post-sale taxes, and the need to assemble your transaction team.

Want to assess your business's readiness for sale and what steps to take in the interim? The FREE Ultimate Exit Readiness Report is designed to help you do just that.

By understanding and addressing key areas, you can prepare your business to sell confidently and at the highest value. This report provides a clear, step-by-step roadmap to guide you through the process, ensuring you are fully prepared to make the most of this critical opportunity.

Want more help? The Exit Strategy Formula mini-training helps business owners with aspirations to sell their business with the right-sized intel so that they can follow the same process as the pros to maximize the price.

Ensure you paint a compelling picture, don’t give away sensitive info at the wrong time or be forced to accept an offer that is too low.