This is probably the No. 1 FAQ but not something that can be answered in this medium. Please don’t expect a Business Broker or CBV to answer this over the phone. In extreme cases, you might be told that your business isn’t worth anything or isn’t sellable over the phone.  It’s unfortunate but sometimes that’s the situation and an honest professional will tell you. To get this question properly answered be prepared to provide some detailed information, answer some questions, and give the individual some time to provide you with an informed reply.

It’s more complicated than just this list but these are some of the most important factors when determining the sale value of a business.

Earnings

The Owner’s involvement in the company.

The Earnings’ trend over the last couple of years.

The Market.

Competition.

Barriers to entry.

Fair market value Will depend on what a buyer willing to pay in today’s market.

For many years, if not forever, the number one obstacle to selling small businesses has been seller expectations. In other words, the market would not bear the price that The seller was asking for. Something to consider.

No. But that doesn’t mean a business that isn’t sellable today can’t be improved upon or changed in certain ways to make it more sellable.

Yes, but that’s usually more the role of a business coach/advisor/consultant etc. A qualified Business Broker can certainly tell you why he/she thinks your business is not sellable or will be difficult to sell.

Determine whether you really want to sell your business. Why do you want to sell your business? What will you do after you sell your business?

Anybody that has been in the business brokerage industry for a while will tell you of sellers that signed up to sell their business and then pulled it off the market before closing the deal. Sometimes early, sometimes late in the process. There are there are various reasons given. Sometimes it’s just a matter of a business owner not fully thinking things through. 

Sometimes the owner doesn’t know what she will do after the sale, or he’s worried about post-sale income, they just don’t want to let go of their baby, he/she might have been pressured into selling by a spouse and never wanted to sell in the first place. This amounts to a colossal waste of time and money. So the first step is to determine that you really want to sell your business and why want to sell it. You may begin the process and change your mind when you realize you won’t get anywhere near what you thought the business was worth. That’s fair. That’s why many business brokers will determine a reasonable selling price before asking for an engagement. 

I know of one retired professional that required his prospects to speak with a psychologist about the whole process first. He had lost one too many clients midway through the process. He also started charging a monthly fee between signing the engagement contract and actually closing the sale to mitigate his costs in the event a seller changed his/her mind.

If you have made your decision to sell your business, for what the market will bear, you are well on your way.

Educating yourself (Which is why you’re here). Second step would be to talk to business brokers or M&A professionals about the process and their requirements. You will want to start to organize your internal documents. Financial statements, asset list, property lease etc. and your minute book should be brought up to date.  You do not need all of this at your fingertips before you call. Just know that this is the information that a professional will require sooner or later.

You can expect to be asked for “some” of this information when you first begin working with a business broker or M&A professional. You can expect to be asked for all of the following items that apply to your company, and more, during the due diligence phase. 

HISTORICAL FINANCIAL STATEMENTS   (For the most recent three years) 

Profit and loss statements, balance sheet 

Bank statements

FEDERAL TAX RETURNS

 (For the most recent three tax reporting years)

Corporate Tax Returns – Schedules 100, 125. (Canadian Tax Returns)

CURRENT FINANCIAL STATEMENTS

Interim Financials

  (For the most recent reporting period)

Schedule of all indebtedness of the business

Accounts receivable aging report

Inventory information

Summary of job-in-progress report

COMPANY ASSETS AND REAL ESTATE

List of Assets to be included in the sale

List of Assets to be excluded from the sale 

List of Assets not appearing on balance sheet

Copies of leases for real estate and equipment

Appraisals on real estate and/or equipment (if available) 

Environmental reports/surveys

EMPLOYEE RELATED

Any employment contracts, representative agreements, etc.

Organizational Chart –  (Job description and rates of compensation) 

Copies of any pension and/or profit sharing plans

Buy/sell and/or shareholder agreements (Unanimous Shareholder Agreements)

Employee benefits, group health insurance, etc.

CONTRACTS, POLICIES, MARKETING, ETC.

Copies of all insurance policies

Brochures, advertisements, print ads, articles, maps, etc. 

List of any contracts for services

Copies of any patents, copyrights, trademarks of value