The list price for a business is usually a multiplier of Seller’s Discretionary Earnings or “SDE.”  In order to prepare adjusted financial statements and determine SDE, an audit trail must be created to support representation of the Seller during due diligence.  Toward that end, below is a partial checklist of items to assemble once you commit to the sale of your business.
Following things should be included in financial history:

1. Profit and loss statements for the previous 3 years

2. In order to establish the true earning capacity or cash flow for the business and
demonstrate how profitable it truly is - review each expense item reflected on the
yearly profit and loss statements requested above and create a schedule of all the
unnecessary items not essential to operate the business. These include all
“discretionary,” (owner perks and benefits such as automobiles, boats and planes
for personal use, excess or unnecessary labor or salaries [i.e., family members on
the payroll], unnecessary travel and entertainment, contributions to retirement or
personal insurance plans and extraneous personal or unnecessary expenses
including telephone, repairs, etc.) “non-recurring” (moving expenses)
“extraordinary” (gain or loss from the sale of business equipment) or “one-time”
(equipment purchases not made in the ordinary course of operating the business)
expense items

3. Balance Sheets for the previous year

4. Copies of all documentation related to the ownership of intellectual property including the establishment of all copyrights, trademarks, service marks,trade names and patents

5.  Contracts

• Janitorial and maintenance contracts
• Landscaping contracts
• Telephone answering service or other service contracts
• Order fulfillment service contracts
• Uniform and laundry contracts
• Fuel service contracts (bulk oil, propane, etc.)
• Advertising and marketing contracts

6. A schedule of business long-term liabilities, including:

• Real estate loan documents
• Promissory notes, outstanding lines of credit, etc.
• A schedule of any outstanding officer’s loans, including supporting documentation, if any

7. Web site statistics, including: (a) percentage of organic versus pay per click traffic (b) conversion rate, (c) list of search engines in which indexed, (d) organic ranking information for various key words for each search engine, (e) pay per click budget per month broken down by each key word for each search engine, (f) number of one-way links, if any (g) number
of unique visitors each day, (h) number of page views each day, (i) any
online review sites (if so, provide links) and (j) hosting information.QBSNet,  can assist you in documanting and packaging your business for sale in an organized and presentable manner.

For more assistance in business transactions, visit Quantum™ Blog.

This entry was posted on Monday, December 24th, 2007 at 5:52 pm and is filed under Selling a business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.