There’s much talk these days about the business plan, yet the sale-of-the-business plan seems to get little attention. Right now is the time to discuss the eventual transition and the due diligence checklist. Planning ahead for your potential acquirer’s required list of documents is an effective blueprint for the organization of your files and records.
You may say, “I’m never going to sell my business,” or even, “I’m giving the business to my kids so I won’t have to worry about the buyer’s due diligence.” But knowing what an acquirer wants to see and why will give you a big head start on what records are important to anyone who will own, manage, or invest in your company.
It is essential to have these documents in order from day one because you can’t afford to wait until Mr. Big comes knocking. What are you going say then? “Oh wait just a minute… please stay interested! I know I’ve got that information around here somewhere!”
By the time you locate what the acquirer wants to see, you can lose your salespeople and customers. Your equity will diminish by the minute. After-the-fact artwork sign-offs will cost a small fortune since you’ve now built the brand and the artist knows the valuable of her work has increased greatly.
Time generally favors the buyer, not the seller, because news gets out, your employees look elsewhere for job security, and customers look elsewhere for stability. They all are concerned about what the next guy will do to your company and your brand. So be prepared! Here’s the short list of the essentials you need right now:
- Legal Documents. All contracts and agreements (both written and verbal) relating to: real estate, equipment, supplies, outsourced services, purchases, sales, licenses, filings, patents, trademarks, copyrights, government approvals, corporate documents, permits, domains and
- Disclosures. Anything irregular, surprising, hidden, unauthorized or in any way possible to cause the acquirer potential liability going forward. Include any written or verbal agreements that have been or may have been violated. These disclosures really protect you as the seller, so don’t skimp here. It’s the stuff you don’t disclose that will come back to bite you!
- Artwork and Designs. All logos, pictures, trade dress, package designs, websites, landing pages, marketing materials, signage, slogans, catchphrases, presentation deck slides, branded items, process maps, infographics, guides, etc. Get these sign-offs at the time they are created.
- Sales Histories. Beginning on day one, show your sales graphically over time. Break out by customer, demographics, region, etc. If online, break them out by platform or sales campaign. Your acquirer wants to see your history and rate of growth.
- Chart of Accounts. This is your followers, your lists, your direct-to-consumer buyers, your wholesalers and retail accounts. Add contact information, correspondence, pricing and sales. Acquirers will use this to predict your brand’s growth potential.
- Employees. All records of past and current employees, including: legal HR compliant information, training records, salaries, benefits, and commissions. All reprimands, accolades, or other information in each employees’ files. Include any ads you ran for jobs, job descriptions, organization and process charts, and your Employee Handbook.
- Financials. This includes tax returns, P&L, and statements of net worth going back to the beginning. Also include cost of goods, cost of sales, pricing studies, price support and programming, and any other financial documents that will help them understand and grow your business.
There’s much more to be sure, and, depending on your business, there may be some special documents they want to see. The best way to know is to ask a business broker in your space. But by all means do get started today!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders