What Documents Do I Need When Selling My Business?
The documents you present during the due diligence process is the very proof of the value of your business. It strengthens your case, especially when you’re confident about the figure you’ve set as the asking price. Let’s explore each basic document for sale of business in this article.
Key Takeaways
Strong financial records are the way to prove your company’s value to buyers. Tax returns establish credibility, while balance sheets reveal net worth. Profit and loss statements highlight profitability, and cash flow projections show sustainability. All in all, they give potential buyers the chance to assess risks, potential returns, and whether your business is a solid investment.
Efficiency drives business success, and documenting your operations helps buyers maintain it. Through detailed SOPs, manuals, and handbooks the future owner can duplicate the success and more. Documents such as business licenses and permits, zoning compliance certificates, and insurance policies provide essential guidance, helping buyers navigate regulations, protect assets, and capitalize on growth opportunities in the right market.
Well-prepared legal documents boost buyer confidence. Corporate records like articles of incorporation, operating agreements, and corporate bylaws clarify ownership, decision-making, and management structures. Business registration certificates prove the legitimacy of the business and its operations, while transferable contracts streamline operations.
Essential Financial Documents
There is no better way to present the fiscal health of a company other than the following financial statements:
Tax returns. Properly filed tax returns indicate the credibility of the company. It is part of what potential buyers will scrutinize. They will specifically look at your current tax liabilities, previous returns, and current tax disputes.
Financial statements and balance sheets. Buyers see your company’s financial standing using balance sheets. It is the reflection of the net worth presented through figures relating to equity, assets, and liabilities. With these financial statements, potential buyers can see the debt and liquidity levels. They can determine whether or not the company is financially sound through them.
Profit and loss statements. Shows how profitable the company is within a set period. It is the reflection of your financial performance and operational efficiency presented by expenses, costs, and revenues.
Cash flow projections. This document helps the buyer assess whether this business is truly a worthwhile investment. It needs to do more than just cover expenses and loan payments—it should also provide a fair income for the new owner and leave room for reinvestment and growth. A strong profit ensures the business moves forward, not just stays afloat.
Business Operations Documents
Most businesses are successful because of the high level of efficiency in their operations. If this is something you’ve already achieved in your business, then it’s only right to show the future owner how everything is done. Every aspect of business operations should be documented in the form of handbooks, SOPs, and manuals. Other relevant documents within the scope of business operations are listed below:
Business licensed and permits. Some types of businesses are only permitted to operate once they’ve obtained specific licenses mandated by the government. Some of them can be transferred to the new owner, while others need a new application from the new owner. Create a manual that instructs the owner which licenses are retained and should be obtained.
Zoning compliance certificates. Choosing the right zone for your business will allow the future owner to expand their operations. Include this information, especially if you’re in the right zone for market growth since it will contribute to the value of your business.
Insurance policies. You’ll likely cancel your insurance post sale, but your buyer may need copies to match coverage. Providing this helps them secure proper protection and connect with your insurer.
Legal Documents Needed to Sell a Business
The preparation of legal documents can be a meticulous process. But when done right, you’ll become credible in the eyes of prospective buyers. Take a look at all your agreements, contracts, and licenses to determine which ones are transferable.
Articles of incorporation. This corporate record proves that you can legally operate within a jurisdiction. It delivers the basic information about the organizational structure.
Operating agreements. These documents will guide the new owners regarding the framework of the ownership as well as the responsibilities of the board members. It guides the future owner regarding how management procedures are carried out. Operating agreements are internal documents, but in some jurisdictions having this is a requirement.
Corporate bylaws. They give the next owner a solid game plan for running the business. They lay out how decisions get made, who has voting power, and how things operate day to day. This keeps everything running smoothly, even as leadership changes, so the new owner isn’t left guessing or dealing with chaos. It’s all about making the transition easier and keeping the business on track.
Business registration certificates. Business registration certificates serve as proof that you are operating a legitimate business. This is just one of the basic yet necessary documents that potential buyers will check.
FAQ
After I prepare every required sale of business document, how fast can I sell my business?
There’s no set timeline for when a business will sell. On average, the process takes about a year, but owners may need to stay on after the sale to maximize their payout. Working with brokers can speed up the process since they have a network of serious buyers.
Is it easy to sell your business?
The truth is that some businesses are easy to sell, while others are not. If a company is financially sound and profitable, at the same time, the market situation is favorable, given the owners can prove its profitability through the documents we’ve discussed above, the sale process can proceed quickly.
Do I need to prepare the same set of business sale documents when I’m selling a failing or unprofitable business?
Every business seller generally has to prepare these documents. The main difference is that the owners with failing businesses have to point out areas where there is an opportunity to be profitable if they want to end with successful deals.
Are patents transferable to the new owner?
Intellectual property rights can be transferred to the new owner after the sale of the business. The transfer happens when the owner assigns the intellectual property to the entity that purchased the company.
Conclusion
In this post, we’ve discussed the importance of organizing documents early. Selling a business is such a huge responsibility that requires proper preparations so that buyers can fully understand how the business works and how to arrive at major decisions for the company’s growth.
Do you need help preparing closing documents for sale of business? Reach out to our brokers at WebsiteClosers.com.
