Getting your business ready to sell

Buyers pay for earnings they can verify. Anything they cannot verify gets discounted or ignored.

• Move to accrual accounting if you can, or at least be able to produce accrual-basis statements
• Make sure your financial statements reconcile to your tax returns; unexplained gaps are the most common diligence problem
• Separate personal spending from business spending, and keep a written record of any add-backs so they are provable later
• Clear stale items off the balance sheet: uncollectible receivables, obsolete inventory, assets you no longer own
• Get a formal review or compilation from an accountant if you are near or above the one-million-dollar earnings mark
• Resolve outstanding tax filings, payroll tax issues, and sales tax exposure now, not during diligence

The most valuable change most owners can make is to become less necessary. A buyer is pricing the business that exists after you leave.

• Introduce your top customers to someone else on the team, and let that person own the relationship
• Write down the things only you know: pricing logic, supplier terms, the quirks of how jobs get quoted
• Give a manager real authority over scheduling, hiring or purchasing, and let the record show it worked
• Take a two-week absence and see what breaks. Whatever breaks is your work list.

Build the folder before a buyer asks. It shortens diligence by weeks and it changes how a buyer reads the business.

• Three years of financial statements and tax returns, plus year-to-date
• Add-back schedule with supporting documentation
• Revenue by customer and by service line, by year
• Employee roster: role, tenure, compensation, and who is critical
• Every signed contract: customers, suppliers, lease, equipment, loans
• Insurance policies and claims history
• Corporate records: formation documents, ownership, minutes, any partner agreements
• Equipment schedule with age and condition

Go to market after a clean year, not in the middle of a bad one, and not once you are worn out. Owners who wait until exhaustion lose their patience for diligence, which is exactly when concessions get made.

Keep the process quiet until a deal is real. A signed non-disclosure agreement should come before financials, and staff and customers are usually told after the purchase agreement is signed, with a plan for how the news is delivered. Every conversation with us is confidential from the first email, which is also covered in our privacy policy.

• A transaction attorney, not a general business attorney, to write and negotiate the purchase agreement
• A CPA or tax advisor who models your after-tax proceeds before the letter of intent is signed
• A financial planner, if the sale is funding your retirement
• A broker or M&A advisor, if you want a competitive process; see the comparison in the next guide

The U.S. Small Business Administration also publishes a free overview of closing or selling your business.