The decision to sell your business is a monumental one, often representing the culmination of a
lifetime’s work. But many founders are shocked to discover that the company they’ve put their
heart into isn’t an easy sale.
The truth is, while valuation is an assessment of future financial potential, the sale of a business
focuses heavily on past performance. Proactive preparation can dramatically increase your
company’s appeal, reduce buyer due diligence headaches, and ultimately secure a premium
price.
Here is your strategic playbook to prepare your business for a sale and maximize its valuation.
1. Start Early: The best time to prepare for a sale is long before you list. You can’t just stage your business like you would stage a house, with a coat of paint, new landscaping, and the smell of fresh cookies. Last-minute “window dressing” is obvious to experienced acquirers. A sustained period of strong, clean financial performance is the most credible foundation for a high valuation.
2. Ensure Financial Fitness: This is where buyers will look first. Ensure your financial
statements (Profit & Loss, Balance Sheet, Cash Flow) are accurate, consistent, and prepared under GAAP standards.
3. Exhibit Strong Revenues: Build recurring revenues where you can. Whether it’s
subscription models, long-term contracts, or repeat customers, consistent revenues are
valued significantly higher than one-offs. Client diversity is also a concern. If one client makes up a significant percentage of revenues, it’s a red flag. Diversify your client base well in advance to mitigate this risk.
4. Understand Profitability Drivers: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a common profitability metric used in transactions. Understanding
the items that affect EBITDA is crucial. Adjustments are common, where you add back non-recurring or owner-related expenses (e.g., excessive compensation), but be ready to justify every adjustment.
5. Build Company, not Personal, Goodwill: If you are looking for a complete exit of the business, the buyer will want to know the business can thrive without you, the “key person”, at the center. Business processes—from sales onboarding to software development to customer support—should be documented. Additionally, a strong, incentivized second-tier leadership team is a huge asset. It shows the business has depth and can transition smoothly.
6. Know Your Story: Be able to articulate the market opportunities and your realistic plan to capture more of them. This is not just pointing to prior period growth. Demonstrate scalability: Can the business handle 2x or 5x the volume with its current structure? If not, identify and, if possible, alleviate bottlenecks before the sale.
7. Keep a Good “House”: Have good documentation of shareholder agreements, clear up any pending litigation, ensure that all contracts are assignable, and that you are fully compliant with all regulations. Legally secure your intellectual property: Patents, trademarks, and proprietary technology are assets, and legal protection boosts their valuation.
Thinking about your next chapter? Start the conversation early. Even if a sale is years away, operating with these principles will make your business stronger and more valuable, no matter what you decide.
Ahuja & Consultants can help guide your business through the process. Our accounting professionals can help ensure clean financial records won’t cause any roadblocks. Our tax specialists can assess and identify potential tax exposures and their impact on a stock or an asset transaction. Additionally, our advisory team can provide comprehensive financial due diligence services with actionable insights into significant issues around financial health and potential risks.
Ross Belsome, CVA is a Certified Valuation Analyst credentialed by the National Association of Certified Valuators and Analysts. He has over 12 years of experience as a forensic accountant, specializing in business valuation, economic damages, business interruption loss in insurance claims, and bankruptcies.
