Bureaucracy is the great monster you have to face to get through procedures such as selling a business. So-called “paperwork” can be a major hurdle for business owners who are considering selling their company and don't know where to start a sale process.
But don't worry: we're going to explain everything about the documentation required when buying and selling a business so this important step doesn't intimidate you.
Documentation by stage
The truth is that selling a business involves different stages, and each one requires different documentation. That's why we're going to break the process down into stages, to make it easier to see which documentation takes priority in the first steps and which must be submitted at the end of the process.
First stage
Sell-side mandate
The sell-side mandate is a contract signed between the business owner and the advisor or person in charge of selling the company. This is undoubtedly the first step to take when selling your business, so that the advisors can start working within a clear framework agreed by both parties.
This step establishes the relationship between the two, as well as each party's obligations and rights, the fees or commissions to be paid, the work schedule, the goals for finding a buyer, and so on.
Blind profile or teaser
This step involves preparing a report that sets out the company's general characteristics to show to potential buyers. It's blind because when several sale opportunities are presented to potential investors, they are anonymous.
This blind profile should include the most general information, such as why the owner wants to sell, the financial data for the last two fiscal years, the expected future projection, and other data that paint a general picture of the company. It's usually a document of no more than two pages, so it covers the most basic aspects and serves as an introduction for interested parties.
Information memorandum
Preparing the information memorandum is also part of the first stage. This document can be described as an expanded version of the blind profile. At this point, a non-disclosure agreement is signed with potential investors or buyers so that more information about the company can be shared.
Basically, this information memorandum is a business plan that details the view of the industry and the company, covering the company's strengths and weaknesses, as well as a list of competitors and how it is positioned against them. Finally, it also includes an expanded version of the financial data previewed in the blind profile and a more detailed projection of the company's future.
Business valuation report
Although it isn't mandatory, it's useful and valuable for the potential buyer to have a valuation report on the company, and it's even more attractive for the seller to have one before starting the process. That way, you can get a clearer idea of what your business is worth and how much you can ask for it.
Second stage
Financial due diligence
The second stage is perhaps the most demanding in terms of documentation. Here, the well-known financial due diligence will be essential, although depending on the company, you may be asked for other types of due diligence, such as legal, tax, or employment.
In financial due diligence, you'll have to hand over information to an external firm that will carry out the valuation and analysis of the company. Typically, you'll provide the income statements for recent years, the Modelo 200 corporate income tax return, the Modelo 347 return of transactions with third parties, a list of customers and suppliers, Social Security contribution settlement receipts, and other documents such as lease agreements or licenses.
The truth is that this can be the most tedious part, since you have to track down all that information, but it's also essential to bring transparency to the process and keep the deal moving forward.
Warranty agreement
Although due diligence is usually decisive and ensures clarity and transparency in the process, the parties may sign a warranty agreement, especially to cover the discovery of new documentation that was not included in the due diligence.
Third stage
Share purchase agreement
This is the last step when selling a business. It covers everything from the price to the payment terms of the deal, withholdings, any covenants or agreements, and other circumstances that need to be included. If the company's shares are spread out, they would need to be brought together to sell them to the potential buyer.
Key documents in the process
To sum up, this is a list of the documents you should prepare when selling a business:
- Certificate from the Agencia Tributaria (Spanish Tax Agency) confirming that you are up to date with payments
- Certificate from the Seguridad Social (Spanish Social Security) showing the status of payments
- Income statements for recent years
- Latest paid invoices
- Contribution settlement receipts
- Modelo 347 (third-party transactions return)
- Modelo 200 (corporate income tax return)
- Inventory
- Customers
- Suppliers
At Deale, we support you throughout the entire sale process to guide you and make it simpler, because selling your business is much easier with us. Plus, you can value your company in just a few minutes on our digital platform. For everything else, our team will help you and answer all your questions.
