Documents & Information Required to Sell a Business

Here’s a Checklist of Documents and Information You’ll Need When Selling Your Business

I’ve assembled a checklist for you of the legal and financial documents you will likely need at various stages during the sale of your business. Not every document will be needed but many will so it’s best to be prepared and have them all available.

  • A Non-Disclosure/Confidentiality Agreement
  • Personal Financial Statement for buyers to complete
  • Two or three years of Internal Profit & Loss Statements
  • Up-to-date balance sheet
  • Two or three years of corporate tax returns
  • Additional documentation to substantiate stated financial representations
  • Copy of current lease
  • Insurance policies
  • Professional certificates
  • Supplier and/or client contracts
  • Employment Agreements
  • Letter of Intent from buyer to seller
  • Written offer to Purchase Agreement
  • Promissory Note for any seller financing
  • Security Agreements, UCC Financing Statements
  • Escrow and pledge agreements
  • Post-closing agreement

The General Rule About Disclosing Information

During the various stages of negotiation and then again later in the sales agreement, a buyer may request documentation from you that may be highly confidential which you are not prepared to disclose at that point. Be upfront and explain why you are hesitant to release sensitive information. For example, there is no need for a buyer to have access to customer lists or highly confidential supplier contracts until an accepted offer is in place and they have satisfied their initial financial review (due diligence). Likewise, let the buyer make a compelling argument why they need certain information that you are not comfortable providing early into the negotiations. Try to avoid derailing a deal because of this predicament but be cautious. You must understand that a buyer will need a reasonable amount of information to be able to put an offer on the table and so you may need to put yourself in their situation to understand their request.

Valuing Your Business

Let Common Sense Prevail!

Allow your common sense and industry averages to prevail. A buyer is buying the future, not the past. Projected earnings based on past and present numbers ($$$) is often the source for the earnings figure used to value the business.

This approach makes sense to most buyers as long as projections looks realistic.

Use Earnings Before Interest & Taxes (EBIT)

What is the specific calculation of “earnings”? There is a simple definition – one used by accountants for businesses large and small. It’s called “Earnings Before Interest and Taxes” (EBIT) as it is known and defined by accountants.

What’s the right multiple? Well, it depends! For most businesses, it’s somewhere between 3 to 5 times ‘normalized’ EBIT. But it can be less than that when there are few tangible assets and it can be more than that when the business is uniquely attractive.

The right multiple is, in the eyes of buyers, a matter of assumed risk. Buyers feel secure about buying tangible assets that they can identify with direct sources of evidence to estimate value – things like real estate and equipment.

Why did I reference 3 to 5 times earnings? Well, to buyers, such a multiple represents getting your investment back in 3 to 5 years from profits. That’s equivalent to a projected annual return on investment of between 20% and 33%. That’s the type of return rate that encourages buyers to take the leap of faith to buy an existing business.

Exceptions to this valuation method most often involve the inclusion of real estate and inventory for re-sale, because owning real estate and inventory items is theoretically less risky than owning the other assets of a business. This is especially true for the valuation of businesses which occupy real estate and are owned by the seller which could easily be sold on the open market if the business failed, or businesses which have large amounts of inventory for re-sale which would be easy to liquidate. Remember, the real estate component should be separately appraised for its highest or best use. Don’t over-value or under-value real estate when selling your business.

Care must be taken not to double-count assets. In the case of real estate, for example, the parties should make appropriate adjustments to non-real estate business expenses. If the real estate value is to be added back to the business value, then the seller must subtract a real estate rent expense when calculating the business earnings. This will lower business earnings and the business entity value. But you can then add-back the real estate value as a separate figure.

The handling of inventory values can be equally evasive. Inventory is almost always valued at direct cost, but you must carefully consider the effect that adding-back inventory value will have on the buy-sell transaction. How inventory is purchased and financed by your buyer can have a dramatic effect on the economics of the transaction.

Generally, intangible assets like an owner’s agreement not to compete, or to consult during a transition period, are included in the value of the business derived by using a multiple of earnings, even though such assets may well be treated separately at a business closing for tax purposes.

Choosing a Business Appraiser

How do you find a qualified business appraiser? How much does a good business appraisal cost? Do you need a business appraisal? Sometimes yes, and often… no, or maybe. There are many varied reasons for needing to know what a business is worth.

Hire the Right Type of Appraiser

If you decide to hire a business appraiser, you need to check around. People assume business appraisers also are real estate appraisers and equipment appraisers. They are not the same.

The problem is that almost all businesses have equipment and many also have real estate. So, it can be difficult to determine what type of appraiser is appropriate. There are even times when you may need more than one type of appraiser.

Look for a ‘Professional Designation’

When picking an appraiser, the key may be found in the appraiser’s ‘professional designation.’

Business appraisers have widely different backgrounds.

Most business appraisers will have a ‘professional designation.’ They will have initials after their names that indicate the designation(s) they have earned. The ones you are most likely to see (*1) that require serious study and actual appraisal experience and which are issued from reputable and recognized trade associations include:


CBACertified Business Appraiser
ASAAccredited Senior Appraiser
CPA/ABVCertified Public Accountant /  Accredited in Business Valuation
CVACertified Valuation Analyst
CBVChartered Business Valuator

Insist Upon Independence

Every business appraiser with a professional designation subscribes to a code of ethics which requires independence. The appraiser must not become the employee, agent or advocate of the client. A professional appraiser is hired only as an independent expert and is to be an advocate only of his/her own professional opinion.

Before you hire a business appraiser, you will be asked to read and sign an appraisal agreement or engagement letter. This agreement will clearly describe the independent nature of the appraiser’s opinion.

Any report you receive will also have this independence clearly described.

Would you like to receive our free complimentary handout on the five steps to selling your business?

CLICK HERE – Five Steps to Selling a Business – PDF Handout

Fredrick P. Niemann Esq.

Have additional questions about what to do when selling your business? If so, I want you to call Fred Niemann toll-free today at (855) 376-5291 or email him at to schedule a low cost and convenient consultation about your sale of a NJ business.





Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Selling a Business Attorney