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Selling

Why owners should plan a sale years ahead

Most owners I meet have thought about selling for years. Very few have planned for it. Those are different things, and the gap between them usually shows up in the price.

The national numbers say the same. In a recent survey of business brokers and M&A advisors, between 60% and 90% of sellers, depending on deal size, had less than a year of exit planning or none at all. Retirement was the reason for about two-thirds or more of sales between $500,000 and $50 million. Most owners see the day coming and still start late.

Why an out-of-town buyer needs more from you

In a metro area, a decent business with clean books can draw buyers from across town. Outside one, the buyer for a resort or a contractor may live hours away, and they'll probably need a bank loan to buy it. That buyer can't drop by on a Tuesday to see how things run. They'll learn about your business from your paperwork, and the lender will check every number in it.

Seasonal businesses add another layer. A buyer looking at a marina or a lodge wants to see several full seasons in the records, good and bad, before believing the averages. If your books don't show the season clearly, the buyer assumes the worst version of it.

Then there's confidentiality. When everyone in town knows everyone, a sale handled loosely can cost you a key employee or a big customer long before you close. Good preparation lets you market the business without your name on it until a buyer has signed a confidentiality agreement.

What buyers look at first

Your books. Buyers and lenders start from your tax returns. If your profit-and-loss statements don't tie to those returns, every adjustment you ask them to accept becomes an argument.

Your role. If you hold every customer relationship, run every job estimate, and carry the only license the business needs, the buyer is really buying a job that depends on you staying. That lowers what they'll pay, or pushes more of the price into payments that depend on how things go after you leave.

Your customers. One customer at a quarter of sales is a risk a buyer will price in. Spreading revenue out takes years, which is one more reason to start early.

Your paper trail. Leases that can transfer to a new owner, equipment titles in the company's name, written agreements with key suppliers. Missing documents slow a deal down at the worst possible time.

How long the sale itself takes

The same survey put Main Street sales at about 6 to 10 months from engagement to closing, and lower-middle-market deals at about 11 to 12 months. That clock starts once the business is ready to show. Getting it ready is the part that takes years, and it's the part you control.

A plan that starts two to three years out

The first year is about knowing where you stand. Get an honest read on what the business would sell for today. Clean up the books so they tie to your returns. Stop running personal expenses through the company, because every one of them becomes an adjustment a buyer will question.

The second year is about making the business less dependent on you. Hire or promote someone who can run the day-to-day. Introduce your key customers to that person. Write down how the important work gets done. Talk to your landlord about lease terms a buyer could take over.

The third year is the one buyers will study most. By then you want three years of clean financials, a team that runs without you, and a story about growth the next owner can believe.

Bring your CPA and attorney in early, too. Whether you sell assets or stock, and how the price is split across equipment, goodwill, and a non-compete, can change what you keep after taxes. Those are their calls to make with you, and they're easier to make with time on your side.

If you don't have three years

Plans change. A health scare, a family decision, or an unexpected offer can move a sale up by years. You can still do the most useful things quickly: get a valuation, pull together your documents, and fix whatever a buyer would find first. A few months of focused work is worth a lot more than none.

A good place to start is our exit-readiness scorecard. It takes about five minutes, and it shows which of these areas a buyer will push on first.