What to Do in the Year Before You Put Your Business on the Market

Get the books to tell one story

A buyer will lay your tax returns next to your monthly statements and your bank deposits and check whether the three agree. When they do not, the buyer does not assume you made an honest mistake. The buyer assumes there is more that has not been shown yet, and the questions get longer from there.

In the first month or two, sit down with your bookkeeper and ask a plain question. If a stranger read these statements cold, would they understand the business? Personal charges on the company card, loans to yourself sitting in an odd account, revenue booked when the work was done in one quarter and when the cash arrived in another. Each of these has an innocent explanation, and each costs a buyer's accountant an hour or two to confirm. Multiply that by a dozen and the buyer starts to price in the trouble.

Then get the monthly close under control. Statements finished within a few weeks of month end, every month, for the whole year. By the time you list, a buyer can see twelve months produced the same way by the same person. Our post on getting your financials ready for a buyer goes through what clean looks like.

Find out what the business earns without you

Buyers do not pay for your tax return. They pay for what the business earns for a new owner, which means your pay, your family's pay, the truck, the trip to the conference that was half a vacation, and the one-time legal bill all get sorted into what stays and what goes. The sorting is called add-backs, and our post on what counts as an add-back explains the line a buyer will draw.

The year before you sell is the time to start writing these down as they happen. An add-back with an invoice and a one-line reason behind it holds up. An add-back you reconstruct from memory two years later gets cut in half in the first meeting. If you keep a simple running sheet this year, you will have a full set of supported adjustments by the time a buyer asks.

Be honest with yourself about the other direction too. If you pay yourself far less than it would cost to hire a manager to do your job, a buyer will notice that your profit is overstated. We would rather you see that now, while there is time to adjust the story or the staffing, than hear it for the first time across the table.

Fix the things you have been putting off

Every owner has a list. The back door that sticks, the software license that lapsed, the supplier agreement that was only ever a handshake, the permit that is a year behind on renewal. None of these matters much to you. All of them matter to a buyer who is about to put a lender's money behind the business and wants nothing to turn up after closing.

Walk the property and the paperwork as if you were the buyer. Check that licenses and registrations are current and in the right name. Check that major equipment has a service history. Check that your key customers and suppliers have something in writing, even a short letter, that says what the arrangement is. A handshake that has worked for fifteen years is still a handshake, and a buyer cannot value what is not written down.

Deferred repairs deserve a particular look. A buyer will tour the place, and the inspection or the lender will find anything you hoped they would not. It is cheaper to fix a roof leak this spring on your own schedule than to give a credit at the closing table when the buyer holds all the cards on timing.

Customer records belong on this list too. If your customer list lives in your head, a shoebox or one employee's personal phone, put it in a system the company owns this year. A buyer will ask who the top customers are, how long each has been with you, and what each bought last year. Being able to answer from a report, in a few minutes, tells the buyer the business is organized, and that colors everything else they read.

Become less necessary

If customers ask for you by name, or your staff wait for your answer before they act, a buyer sees a business that depends on one person who is about to leave. That reads as risk, and risk lowers the price or changes the terms. Our longer post on owner dependency covers it in depth.

Pick one task a month that only you do and hand it to someone else. Quoting, approving purchases, handling the unhappy customer, signing the payroll. Write down how you do it, let the person do it for a few weeks while you stay out of the way, and fix what breaks. Take a long stretch of time off before the year is up, long enough that the business has to run without you, and watch what happens. What breaks while you are gone is the list you work on next.

This feels slow, and it is. It is also one of the few things a buyer will pay for directly, because it is the part of the business they cannot fix themselves in the first month.

Read the lease and the contracts you signed

Most owners have not looked at their lease in years. Before you go to market, read it for three things: how much time is left, whether you have a renewal option and on what terms, and what it says about assigning the lease to a new owner. A buyer's lender will want a lease that runs long enough to cover the loan. If yours has two years left and no option, the conversation with the landlord should start now, well before a buyer has made an offer. The post on the lease as part of the deal shows how that conversation tends to go.

Do the same with your customer contracts, vendor agreements, equipment leases and any loans. Some have clauses that require the other side's consent to transfer, and some trigger a fee or a payoff when the business changes hands. You do not need to resolve all of them this year. You need to know which ones exist, so none of them surprises you at due diligence.

Insurance is worth a call as well. Ask your agent for a loss history covering the last several years and confirm that the coverage matches what the business does today. Owners add a second location or a new service line and forget to tell the carrier, and a gap like that is easy to close in the first week and uncomfortable to find in the last.

Keep running it as if you were staying

The last year before a sale is when many owners coast. They stop hiring, stop marketing, stop replacing equipment, because it is going to be someone else's problem soon. Buyers look at the most recent twelve months more closely than any other period, and they look at the direction as much as the level. A business that was growing and flattened out in the final year raises a question that is hard to answer.

So keep the sales effort going. Keep the staff you would want a buyer to inherit and give your best people a reason to stay. Do not take on a large new project that will not pay off until after the sale, and do not cut costs in a way that helps this year's profit and hurts next year's customers. A buyer who finds that out will adjust the price for it.

Bring in your own advisors, and keep the circle small

Talk to your accountant and your attorney early. The structure of a sale, whether the buyer purchases assets or the company itself, changes your tax result, and some choices are easier to make before the year closes. Rules vary by state and your advisors confirm what applies to you. Our post on asset sales and stock sales is a good place to understand the choices before you sit down with them.

As for who else knows, fewer people is better for now. Employees, customers and suppliers react to the word sale in ways you cannot control, and a rumor reaches your competitors faster than you would think. We cover timing for staff in when to tell employees, and in most deals we see the answer is later than owners expect.

At Business Advisors of America we often begin with a conversation about where an owner is today against where a buyer will look, so the year of work goes to the right places. If you have a year, that conversation can happen now, and the list will be short.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.