Preparing a business to be sold starts three years early

Aug 29
3 min read

Updated: 2 days ago

Introduction

An owner decides to sell. They approach a broker, a buyer is found, and due diligence begins. Contracts are verbal, the accounts include personal expenses, half the customers deal only with the owner, and there is no documentation of how anything is done.

The price falls, the deal takes a year, and a proportion is deferred against the owner staying on. None of that was inevitable. What buyers pay more for is structural, it takes two or three years to build, and by the time somebody has decided to sell, most of the opportunity to influence the price has already passed. What remains is negotiation about a business whose shape is already fixed.

1. Preparing a business to be sold means changing what the business is

Not tidying the paperwork.

Buyers pay for predictable profit that continues without the current owner. Everything that increases that — documented processes, contracted customers, capable staff — takes years to establish and cannot be arranged during a sale. A buyer sees the business as it is, not as it was about to become.

2. Start at least two or three years before

The single most important point.

That is roughly how long it takes to produce clean accounts over several periods, reduce owner dependence and formalise the customer base. Starting six months out limits you to presentation.

3. Reduce how much depends on you

The largest single discount.

Customers who deal only with the owner, decisions only the owner makes, and knowledge only the owner holds all reduce what a buyer will pay, because they are buying a business that leaves when you do.

4. Produce clean, separated accounts

Over several years, not one.

Personal expenses removed, revenue and costs properly categorised, and a consistent presentation. Buyers examine three years, and a single clean year following two messy ones invites questions rather than confidence.

5. Get the contracts in order

The most common diligence problem.

Written customer agreements, supplier terms, employment contracts, leases and anything relating to intellectual property. Verbal arrangements and missing documents slow every transaction and reduce what buyers will commit to.

6. Address customer concentration

A specific and quantifiable risk.

A business where one customer is a large share of revenue is worth less, because that relationship may not survive the sale. Diversifying takes years and materially changes the price.

7. Document how the work is actually done

Transferable knowledge.

Processes, systems, supplier arrangements and the exceptions that exist only in somebody's head. This is what allows a buyer to believe the business continues to function, and it is genuinely useful to run even if you never sell.

8. Build a management team

The strongest value driver available.

Somebody other than the owner capable of running day-to-day operations transforms both the price and the range of possible buyers. It is also the hardest and slowest thing on this list.

9. Get advice on structure and tax well before

Where the net proceeds are decided.

The structure of a sale and the way the business is owned have substantial tax consequences, and some reliefs require conditions to be met for a period beforehand. Advice in the year of sale is frequently too late.

Work through what a buyer would ask for and see how much of it you could produce this week. That exercise gives you a specific list of what to fix, and it is considerably more useful than a general intention to get the business ready at some point.

Conclusion

Begin two or three years out, because the things that raise the price are structural.

Reduce the business's dependence on you as the largest single value factor, produce clean separated accounts across several years, formalise customer, supplier and employment contracts, address concentration where one customer dominates revenue, document how the work is actually done, build someone capable of running operations without you, take tax and structure advice well in advance, and audit yourself against what a buyer would ask for.