The best time to prepare your business for sale is before a buyer is looking at it.
A well-prepared business is easier to understand, easier to diligence and, importantly, gives a buyer fewer reasons to question the price or renegotiate later in the process.
You don’t need to make the business perfect. You do need to make sure the numbers are clear, important information is readily available, and any obvious issues have been dealt with before they become a buyer’s concern.
If you’re thinking about selling, these are the areas worth focusing on.
1. Get your financial information in order
This is one of the first places a serious buyer will look.
Ideally, you should be able to provide clear historic accounts alongside up-to-date management information showing how the business is currently performing.
Make sure you understand your revenue, gross margin, EBITDA, working capital and cash generation. If there have been unusual movements in performance, be ready to explain why.
It’s also worth identifying any genuine one-off or exceptional costs that may need to be considered when calculating maintainable earnings.
Good financial information builds confidence. If it takes weeks to answer relatively straightforward questions about the numbers, buyers may start wondering what else they will find.
2. Look at the business through a buyer’s eyes
Owners naturally focus on what is good about their business. Before a sale, spend some time looking for the things a buyer might worry about.
For example:
- Does one customer represent a significant percentage of revenue?
- Is the business heavily dependent on you?
- Are important customer or supplier agreements undocumented?
- Is there an unresolved legal, tax or regulatory issue?
- Are margins declining?
- Are key employees likely to leave if the business is sold?
- Does a significant amount of knowledge sit with one person?
Finding an issue doesn’t mean the business can’t be sold.
It is simply better to know about it before the buyer does. You can then decide whether to fix it, reduce the risk or prepare a clear explanation.
3. Reduce the business’s reliance on you
For many owner-managed businesses, this is one of the biggest areas to address.
If you personally manage the key customers, approve every decision, hold important technical knowledge and oversee the day-to-day operation, a buyer isn’t just acquiring the business. They are acquiring a business that still needs you.
That can affect both value and deal structure.
Start transferring responsibility where it makes sense. Strengthen the management team, introduce other people to important customers and suppliers, and document processes that currently exist mainly in your head.
The aim is to demonstrate that the business can continue to perform when ownership changes.
4. Get your contracts and paperwork together
You don’t need a data room on day one, but you should know where the important documents are.
These are likely to include company accounts and management information, customer and supplier contracts, employment agreements, property leases, financing documents, insurance policies, intellectual property records and relevant licences or regulatory documentation.
If an important commercial relationship operates on a handshake, now may be the time to consider whether it should be formalised.
The easier it is to produce information during due diligence, the smoother the process is likely to be.
5. Understand your customers
Expect buyers to spend time looking at your customer base.
Know who your largest customers are, how long they have been with you, how much revenue they generate and whether they are under contract.
Customer concentration is particularly important.
If one customer represents 40% of revenue, that doesn’t necessarily prevent a sale, but a buyer is likely to investigate that relationship closely.
If you have time before going to market, reducing excessive reliance on individual customers can make the business more resilient.
6. Make sure the growth story is credible
A buyer isn’t only interested in what the business has done historically. They want to understand what happens next.
You should be able to explain where future growth could come from.
Perhaps there are new locations to open, services to introduce, customers to target or markets the business hasn’t yet entered.
The important word here is credible.
An ambitious forecast with little evidence behind it is unlikely to persuade an experienced buyer. A sensible plan supported by historic performance, market demand and clear opportunities is much more useful.
7. Think about what you want from the sale
Preparation isn’t only about the business.
Before speaking to buyers, think about what matters to you personally.
Do you want to sell 100% of the company? Would you consider retaining some equity? Do you want to leave immediately, or would you be happy to stay for a transition period? Is the highest possible price the priority, or does the identity of the buyer matter too?
There is no right answer.
But knowing what you want makes it much easier to assess offers when they arrive.
8. Build the right team around you
Selling a business involves financial, legal and tax considerations, and it can become time-consuming while you are still trying to run the company.
Depending on the size and complexity of the transaction, you may need support from an accountant, lawyer, tax adviser, corporate finance adviser or business broker.
It is worth identifying the people you may need before the process becomes busy.
And while the sale is progressing, don’t take your eye off the business itself. A strong set of results during a sale process puts you in a much better position than having to explain why performance has suddenly dropped.
How far in advance should you prepare?
If possible, start 12 to 24 months before you expect to sell.
That gives you time to make meaningful changes rather than simply tidying things up immediately before approaching buyers.
But if you’re already considering a sale, don’t assume you’ve left it too late. Even a few months spent improving financial information, organising documentation and addressing obvious issues can make a difference.
A simple pre-sale check
Before taking your business to market, you should be able to answer these questions confidently:
- Can I clearly explain how the business makes money?
- Do I know what its maintainable earnings are?
- Can I produce accurate and current financial information?
- Do I know which customers, employees and suppliers are critical?
- Could the business operate without me?
- Are the important contracts and documents in order?
- Can I explain where the next stage of growth will come from?
- Do I know what I personally want from a transaction?
If the answer to several of those is no, that doesn’t mean you aren’t ready to sell. It gives you a useful starting point for what to work on.
Considering selling your business?
Preparing early gives you more options.
The Brokerage connects business owners with buyers and investors looking for acquisition opportunities. You can create a business profile, control what information you disclose and start understanding potential interest in your company.