Prepare to sell your business

Once you've decided to sell and determined which outcomes you care about, preparation is key to marketing the business, finding buyers, and negotiating effectively. First, you’ll want to get organized.

Gather required documentation

Gather historical company information stretching back over the lifespan of the business and prepare organized overviews covering:

• Financial Statements: Detailed income statements, balance sheets, and cash flow statements for each year. If business is seasonal or cyclical, provide monthly financials for 2+ years.
• Organizational Details: All locations/facilities, products/services offered, legal entity structure, leadership hierarchy, and headcounts.
• Customer Information: Breakdown of customer concentration, retention rates, how accounts are acquired/managed, and what constitutes a profitable target customer.
• Growth Plans: Quantitative financial projections and qualitative descriptions of expansion opportunities through adjacencies, target segments, etc.

Depending on the specifics of your business, it might be helpful to prepare other documents like:

• Organizational chart of employees
• Sample exclusivity agreements with suppliers or distributors
• Compensation and tenure of employees
• Details surrounding a particularly large customer (i.e., contracts)
• The current backlog of work
• Asset list

Make the health of your business clear to buyers

Seasoned buyers and investors focus on business fundamentals—gross/net margins, pricing power, market position, comparison to competitors—not unchecked growth projections. Highlight stability first and growth second. Transparently address known operational risks rather than appearing evasive.

Metrics you should track

As you prepare to engage with potential buyers and sell, pay special attention to metrics buyers will scrutinize like:

• Growth rate - The year-over-year percentage increase in overall revenue shows how fast the business is expanding.
• EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization. A measure of operating profitability that removes the effects of financing and accounting decisions.
• Revenue - Total sales dollar amount the business collects from customers purchasing its products or services.
• % revenue recurring - The percentage share of revenue that repeats consistently quarter-to-quarter or year-to-year rather than one-time sales. Recurring revenue indicates stability.
• Gross margin % - Gross profit as a % of revenue, which indicates the profitability of the actual products and services before operating expenses.
• Customer concentration - If a significant % of total revenue comes from a small number of large clients, buyers may perceive risk of sudden declines if key accounts are lost. Indicates revenue stability.

Should you use an intermediary?

Conventional wisdom says you need a broker. We challenge that assumption.

Brokers often take 10-15% of the sale price. Some are worth it, guiding you expertly through the process. But others simply make matches, provide templates, and cash checks.

At a minimum, you should hire a competent attorney and accountant to advise you during the sale process. But, there's a decision to be made around a general deal advisor, also known as a broker, intermediary, or investment banker. They're all labels for the same general thing: it's someone who spans the sale process, providing services that help you complete a transaction.

Where can you find an intermediary?

The intermediary market is heavily fragmented. Beyond asking accountants, financial advisors, and legal advisors for recommendations, some organizations and certifications can be helpful to use as a filtering mechanism. Organizations and certifications to research include:

• Accredited in Business Valuation (ABV)
• Alliance of Mergers & Acquisitions Advisors (AM&AA)
• Association of Corporate Growth (ACG)
• Axial Certified Valuation Analyst (CVA)
• CM&AA Certification International Business Brokers Association (IBBA)
• M&A Source M&AMI Certification

Keep in mind that intermediaries come in different flavors.

Some may be willing to travel across the country to work with you. Some specialize in specific industries. Some only work on a referral basis. Finding the right one for your situation should require considerable investment of time and energy.

Again, we don’t always recommend seeking the help of a broker, at least during the initial stages of the process. Brokers, while sometimes effective, don’t have the same incentives you do. While they do want your business to sell for a lot of money, they have less of an incentive to find the right kind of buyer for your business (for anything non-financial). They also have an incentive to sell your business as quickly as reasonably possible, which may not fit with your goals.

Plus, they take a cut of the sale that, in our view, is significantly higher than it should be. You spent a significant portion of your life building your business—yet brokers want to take at least a 10 percent (or higher) cut of the sale just for helping you sell? That’s too steep, especially because there are other effective ways to sell your business.

At Rejigg, we believe that you’ll typically get better results by connecting directly with the right kinds of buyers. More on how to do that in the next section.