How to Prepare Your Business for Sale

The two most common reasons buyers walk away during due diligence: financials that don't reconcile to tax returns, and add-backs that can't be documented. Run your P&L so it reflects true business economics — not tax-minimization strategies — for at least 3 years. If you use cash accounting, consider switching to accrual 18 months before sale.

Buyers and their lenders need your last 3 years of federal tax returns. If you've filed extensions and have unfiled years, get them current before going to market. Unfiled returns stop SBA financing cold.

Owner salary, personal vehicle, health insurance, family on payroll, meals, cell phone, home office — create a spreadsheet with every personal or non-recurring expense run through the business, with supporting documentation for each line. Buyers will request it; have it ready.

Stop running personal expenses through the business 12–18 months before sale. Buyers apply scrutiny to normalized earnings. The cleaner the P&L, the higher the multiple buyers are willing to pay and the faster diligence closes.

The last 12 months before going to market are high-stakes. Strong, growing trailing 12-month earnings support a higher multiple. Weak or declining recent performance raises red flags even if prior years were strong.

If the business can't run without you for 3 weeks, buyers will either discount significantly or require a 2-year transition. Hire a general manager, cross-train key staff, document your institutional knowledge. The target: the business runs at 90% of normal when you're not there.

SOPs, customer service scripts, vendor contacts, recurring operational tasks — all of it documented. A business that runs on documented processes is worth more than one that runs on the owner's memory. And it makes diligence faster.

Identify the 2–3 employees the buyer would most want to retain. Offer them retention bonuses that vest at or after close. Buyers want assurance that key people will stay.

If any single customer is more than 20% of revenue, spend 12–18 months actively diversifying. Even reducing the top customer from 30% to 20% can eliminate a major valuation discount.

Buyers will use every piece of aging equipment, deferred maintenance, or needed capital investment as a negotiation lever. Spend 6–12 months bringing the operation up to 'ready to buy' condition — it almost always costs less than the negotiation you avoid.