Most owners decide to sell long before they tell anyone. If you think a sale could happen in the next year or two, the time between now and then is valuable. It’s your chance to deal with the questions a buyer would otherwise raise later, when they’re harder to answer and more likely to cost you.
Why 12 to 24 months is a sensible window
Buyers look closely at the last few years of results, and they pay attention to the trend. Many of the things that make a business easier to sell, such as cleaner statements or a stronger management team, only count once they’ve been in place for a while. A buyer wants to see them working, not hear that they started last month.
Starting early also keeps your options open. If the preparation shows the business needs more time, you can wait without pressure. Here’s one way to lay out the work.
| When | Main focus |
|---|---|
| 24 to 18 months out | Honest starting point and personal goals |
| 18 to 12 months out | Financial statements and add-backs |
| 12 to 6 months out | Reducing the risks a buyer will see |
| 6 months out to launch | Documents, advisors and confidentiality |
24 to 18 months out: get an honest starting point
Start with what you want. How much do you need from a sale to be comfortable? Do you want to leave at closing, or stay on for a while? Would you sell to a competitor, a private buyer or your own managers? Your answers shape everything that follows.
Then get a realistic view of where the business stands. That means looking at normalized earnings, which adjust your statements for owner-specific, one-time and non-operating items, and at the risks a buyer would price in. An advisor’s view of value gives you a range to plan around and shows which improvements are likely to matter.
This is also the time for a first conversation with your accountant and tax advisor. Whether you sell shares or assets, and how your company is owned, can make a real difference to what you keep. A share sale of a qualifying small business corporation may qualify for the Lifetime Capital Gains Exemption, but the eligibility rules are detailed and some planning can take time to put in place. Get advice on your own situation early.
18 to 12 months out: clean up the financials
Financial statements are the first thing a serious buyer asks for and the basis of every valuation. Aim for:
- consistent statements for at least the last three years, prepared or reviewed by an outside accountant;
- a clear line between personal and business expenses, starting now;
- statements that reconcile with your tax filings;
- a written list of add-backs, each one backed by invoices or records; and
- monthly or quarterly results you can produce quickly once a buyer is involved.
Our article on SDE and EBITDA explains how buyers measure earnings and why the add-backs matter. When a buyer finds inconsistencies in due diligence, they rarely just correct them. They tend to use them to renegotiate.
12 to 6 months out: reduce the risks a buyer will see
Every business has weak spots. What matters is whether you deal with them, or at least explain them, before a buyer finds them. Common ones include:
- Dependence on you. If key customers, pricing or know-how sit with you, start handing them over. See would your business run without you?
- Customer concentration. If one or two customers make up a large share of sales, work on broadening the base, or at least on getting those relationships into written agreements.
- Informal or expiring agreements. Leases, supplier terms and key customer contracts should be current and in writing.
- Equipment. Know what will need replacing soon after closing. A buyer will work it out anyway.
- Related-party arrangements. If you own the building and lease it to the business, make sure the lease is documented at a fair rent.
- Loose ends. Old disputes, overdue filings or tax matters are worth settling now.
Some issues can be fixed. Others can simply be explained and priced fairly. Either is better than a surprise late in the process.
Six months out: organize documents and plan confidentiality
Start gathering what due diligence will ask for: financial statements and tax filings, contracts, leases, employee information, corporate records and an equipment list. Having it organized before you go to market shortens the process and reduces the room for delays.
Bring your lawyer in now as well, ideally one with transaction experience, so the purchase agreement isn’t the first time they see the business. And think about confidentiality. A well-run process introduces the business through a short summary that doesn’t name it, screens buyers before they see details and has them sign a non-disclosure agreement first. That reduces the risk of word getting out, but it can’t remove it, so plan now when and how you’d tell key employees.
Once you go to market: keep the business running well
A sale often takes many months, and some take a year or more. Throughout, buyers and lenders watch current results closely. The most useful thing you can do is keep the business steady and let your advisors handle the process.
Preparation won’t produce a perfect business. It gives you one whose strengths are clear and whose risks are understood.
If 24 months feels like too much, start with the first two steps: write down your goals and get a realistic view of value. Everything else is easier to plan once you know where you stand.
General information for business owners and buyers, not financial, legal, tax or accounting advice. Any examples are hypothetical.
