The best way to prepare your business for sale is to start it early, preferrably 1-3 years in advance. At that time it's good to find a good business broker, see my blog "How To Select The Right Business Broker", and consult with them how to increase your business' value before the sale.
California business brokers at Global Business Group (GBG) most likely will advise you to bring your records in order: financial, legal, administrative. It's quite common for small businesses to maintain very limited documentation, not always computerized. And even if it is computerized, it maybe hard to understand because it doesn't follow common rules. Just remember, your records will be reviewed by prospective buyers and it should make sense to them. Work with your accountant, attorney, etc. If you don't have one, start searching...
It's not a secret that small business owners try to minimize taxes by boosting expenses, mixing discretionary expenses with business-related. Although it gives them financial advantages and minimizes tax liability while running a business, it becomes disadvantage when they decide to sell. During preparation period try to maximize your bottom line, showing as much net income as possible. Trust me, it's worth it. Money that you may loose in taxes will be well compensated by higher purchase price. Remember, business purchase price is a direct function of its net income.
Let me make it clear. Don't waste anybody's time trying to claim income that's impossible to prove. Don't make any assumptions. GBG business broker can advise you what income can be proven and how.
GBG business broker can also advise you about another aspect that elevates value of a business - ease of learning and transfering operation to a new owner. You want to avoid situation where "you are the business". In this case, if you're leaving the business, there's nothing left; it's very hard to sell such business. So what you have to do is to put some infrastructure in place. If you're currently managing business on your own, hire a manager or promote one of the employees, and train him or her to handle all day-to-day business operations. In a long run it will significantly increase value of your business and purchase price accordingly.
Moving to the next step, lets check a status of all agreements that should be transfered to the buyer. Facility lease, equipment leases, service agreements, agreements with vendors and customers, etc... Create a list and mark all agreements that have your personal guaranties. Those guaranties should be released upon sale.
Don't leave any room for surprises. You don't want to get all the way to the end of sale transaction just to find out that your lease is non-transferable. If you're in position to extend existing lease or sign a new one some time prior to sale, incorporate transferability clause and try to insert as many lease options as possible.
Put together a list of assets included in sale and make it as detailed as possible. Remember to include both tangible and intangible assets. Furniture, fixtures and equipment, machinery, office furniture and equipment, software, trademarks, copyrights, patents... try to include everything.
Consult with your accountant how to handle accounts receivables and payables. Is it better to include them in sale and let the buyer collect receivables and pay payables, of you'd like to do it yourself. Your purchase price shall be adjusted accordingly. GBG business broker can advise you regarding the price adjustment.
If your business requires a specialty license from any state or federal agency, get their requirements for transferring a license and requirements to a new licensee. Present these requirements to a potential buyer to make sure that they're qualified.
There are many other aspects of your business that need to be looked at prior to sale and California business brokers from Global Business Group can assist you to putting them in order.
So long,
Jacob Berenfeld
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