What to Do Before You Sell Your Business: The Foundation

August 2, 2018 • Braaten Woods

If you haven’t read part one of this series, check it out before continuing to gain a better understanding of selling your business. 

You’ve built value for your company over years. Now it’s time to focus on the foundation of the sale itself.


One of the first things you need to do when preparing your company for a merger or acquisition is to assemble a team of professionals. They will walk you through the complexities of the entire M&A process. This group of professionals should work well together, putting your interests first.

The largest factor affecting the deal team composition is the purchase price for your company. For deals seven figures and above, you want a financial/sales advisor and transactional business lawyer in your corner. For deals in excess of $10 million, you will want a small team of financial/sales advisors and transactional business lawyers.

Some other factors to consider when assembling your team could be your knowledge of the M&A process, appetite for risk, the industry you operate in and the existence or lack of other stakeholders.


A successful sales plan is the result of extensive preparatory planning. Your company needs to create a sales plan before soliciting potential partners for an M&A that you can initiate repeatedly and uniformly. The plan must be adaptable enough to attract the interest of each unique prospect.

The sales plan requires a strategy, a process, and a way to proceed that you can measure and monitor for potential revisions during the process. Momentum builds with each completed step, so each time you revisit the process it becomes easier. The plan should define:

  • Objectives
  • Trends in the industry
  • Targeted industries
  • Method for sourcing deals
  • Criteria for evaluating targets
  • Budgets and timetables for accomplishing the transaction
  • Range of prices
  • Past acquisition record of the company
  • Financial goals and milestones of the deal
  • Member of the acquisition team and each of their roles
  • The amount of capital that will be required to accomplish the transaction

This is the roadmap, a filter, and a communication piece for the shareholder, buyer, and advisor. An effective plan will lower the transaction costs associated with the M&A process.


What are your goals and objectives for the merger or acquisition? Answering these questions earlier is important for several reasons, specially setting deal requirements which will ultimately help you narrow the list of buyers.


Look for obstacles to the sale itself. These can be in the organizational documents, contracts or leases that prohibit assignment, and financial impediments to name a few. Work with your team to resolve these issues before you approach buyers. It’s better to have company problems addressed before the negotiations begin.

Look for issues that are likely to arise during buyer’s Due Diligence research. Your search should include:

  • Corporate housekeeping
  • Administrative matters
  • Customer information
  • Cost structure
  • Profitability
  • Market share
  • Real estate and other property
  • Status of intellectual property
  • Assignability of key contracts
  • Regulatory issues
  • Minority shareholder issues
  • Litigation

Selling your business can be painstaking. Having the right professionals on your side of the deal can make it a lot easier. Call us at 877.708.9380 or click here to learn more.

Additionally, a more specific financial audit should look at key financial ratios, cost controls, overhead management and profit centers. The purpose of the financial audit is to uncover pre-existing business practices that can or should be changed and, if things can’t be changed, show the prospective buyers where issues can be cleaned up and additional value created.

Recast financials to adjust salaries and benefits to current market levels and eliminate personal expenses such as expensive car leases, country club dues, etc. Purge inefficient expenses to show that luxuries don’t burden your business.


Working with your team, conduct a valuation analysis to determine your company’s value. Review it and confirm it. Do not share this information. It is key negotiating information.

Consider having your valuation analysis prepared by external valuation consultants to help set your expectations realistically. However, be careful with putting too much faith in these valuations. There are dozens of ways to value a company, and negotiation leverage can cause the value to swing far off projections.


You will need the Executive Summary and Confidential Information Memorandum. These should be drafted well before you begin soliciting buyers. Work with your team to prepare them.


Create a data room. Work with advisors on identifying the type and quantity of information to include, however, this does not mean including all the data you have. Don’t add data that undermines the deal value. Be selective about what you include, and what restrictions prevent you from disclosing certain information. Some information to include:

  • General corporate data, including organizing documents and operating agreements, capitalization, meeting minutes, and more;
  • Financial documents like audited and unaudited financial statements for three fiscal years, budgets and comparisons to actual performance, details on capital expenditures
  • Any government licenses and permits
  • Contracts and insurance information
  • Litigation history and documents
  • Human resource information on employees and employment agreements
  • Tax filings for every level of government for last three fiscal years and any open years, any audit information
  • Marketing and customer information, including totals, sales channels, marketing strategy, competitor information, sales operational information, customer contract terms, support services, and pricing
  • Internal affairs management and information systems overview

Having quick access to this information is helpful for your company not only in the M&A process, but in general. Try to regularly update your data room at least every other quarter.

Congratulations, you’ve finished the pre-sale process and laid the foundation for selling your main street or lower middle market business. Now it’s time to look for buyers.

Need help selling your business? Call us at 512.910.2700 or click here to learn more.

• Braaten Woods
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