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Pre-Sale Preparation Guide: How to Prepare Your Business for Sale

Reading Time: 2 minutes

1. Assess Your Readiness to Sell

Before putting your business on the market:

  • Clarify Your Goals: Are you retiring, seeking a new opportunity, or cashing out?
  • Financial Needs: Understand how much money you need post-sale.
  • Emotional Preparedness: Prepare to let go of leadership and decision-making roles.

2. Organize Financial Records

Buyers will scrutinize your financials. Ensure:

  • 3-5 Years of Clean Financial Statements: Include income statements, balance sheets, and cash flow
    reports.
  • Tax Returns: These must reconcile with internal books.
  • Add-Back Schedule: Identify non-operational or one-time expenses.

3. Conduct an Internal Due Diligence Review

Be ready for the buyer’s inspection by:

  • Corporate Structure & Legal Documents: Review key documentation.
  • Contracts: Organize vendor, customer, lease, and employee agreements.
  • Licenses & Permits: Ensure all are valid and current.

4. Streamline Operations

A smooth-operating business is more attractive. Consider:

  • Standard Operating Procedures (SOPs): Document all workflows.
  • Reduce Owner Dependency: Delegate or automate tasks.
  • Team Strength: Retain key employees with contracts or incentives.

5. Maximize Business Value

Enhance key value drivers:

  • Revenue Stability: Focus on recurring revenue.
  • Profit Margins: Cut costs and improve efficiency.
  • Growth Potential: Document opportunities for expansion.

6. Value Your Business

Get a professional valuation:

  • Valuation Methods: EBITDA multiples, DCF, or asset-based.
  • Third-Party Valuers: Use brokers or CPAs for objectivity.

7. Prepare Marketing Materials

Present your business professionally:

  • Confidential Information Memorandum (CIM): A detailed overview.
  • Teaser Summary: A brief, anonymized profile.

8. Build the Right Team

Assemble professionals:

  • M&A Advisor / Business Broker
  • Attorney, CPA, Wealth Planner

9. Plan for Post-Sale Transition

Buyers may want:

  • Training Period: Often 3-12 months.
  • Employment Agreement: Short-term consulting.
  • Non-Compete Agreement: Standard in deals.

10. Protect Confidentiality

Avoid alarming stakeholders:

  • Use NDAs for all inquiries.
  • Limit Information Sharing until buyer intent is clear.

Date:
Analyst:
Client / Target:
Buyer / Acquirer:

1. Executive Summary

Provide a concise overview of the buyer, their relevance to the transaction, and the recommendation outcome.

  • Buyer Type: [Strategic / Financial / Individual / Family Office / PE Group]
  • Transaction Objective: [Acquisition / Merger / Investment / Minority Stake]
  • Fit Summary: [Strong / Moderate / Weak]
  • Recommendation: [Proceed / Further Review / Not Recommended]

2. Buyer Overview

Detail the buyer’s background, structure, and operational scope.

  • Legal Name:
  • Headquarters Location:
  • Founded:
  • Ownership Structure: [Public / Private / Subsidiary / Fund-backed]
  • Key Executives: [List Names and Titles]
  • Business Description:
    • Core business model and markets served
    • Recent performance highlights
    • Strategic direction and acquisition history

3. Financial Profile

Provide financial strength and acquisition capacity.

Metric FY2023 FY2022 FY2021 Notes
Revenue $ $ $
EBITDA $ $ $
Net Income $ $ $
Debt / EBITDA
Liquidity (Cash & Equivalents)
Credit Rating / Bank References

Observations:

  • Assess financial stability, leverage, and acquisition funding capacity.
  • Note any recent financing rounds or divestitures that may impact transaction readiness.

4. Strategic Fit Analysis

Evaluate how the buyer aligns with the target’s sector, operations, and value proposition.

Factor Evaluation Comments
Market / Sector Alignment
Product / Service Synergies
Geographic Overlap
Cultural / Leadership Compatibility
Acquisition History

Summary:

  • Highlight integration opportunities and strategic rationale.
  • Discuss any potential conflicts (e.g., overlapping clients or competitive products).

5. Transaction Readiness

Assess buyer’s ability and intent to complete a transaction.

Criteria Rating Notes
Deal Experience High / Medium / Low
Management Commitment High / Medium / Low
Financing Certainty High / Medium / Low
Speed to Close High / Medium / Low
Due Diligence Responsiveness High / Medium / Low

6. Risk Assessment

Identify potential issues that could affect deal success.

  • Operational Risks: [Integration complexity, cultural mismatch, regulatory exposure]
  • Financial Risks: [Over-leverage, uncertain funding, market volatility]
  • Reputation Risks: [Litigation, ethics concerns, public perception]
  • Execution Risks: [Deal fatigue, management bandwidth, approval bottlenecks]

7. Conclusion and Recommendation

Summarize the findings and proposed course of action.

  • Overall Buyer Rating: [A / B / C / D]
  • Transaction Feasibility: [Strong / Moderate / Low]
  • Recommended Next Step:
    • Proceed to next phase of discussions
    • Request additional diligence materials
    • Discontinue engagement

8. Appendices

  • Financial statements (summary extracts)
  • News articles and acquisition announcements
  • Management bios
  • Comparable transactions

Merit Investment Bank as a leading boutique investment bank is focused on entrepreneurial middle-market companies. Merit Investment Bank Executes sell-side M&A, buy-side M&A, and capital advisory services, debt and equity capital raises, corporate finance, and valuation services.

Securities offered through Finalis Securities LLC Member FINRA/SIPC. Merit Investment Bank and Finalis Securities LLC are separate, unaffiliated entities.

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