I Want to Sell My Business: A 12 Month Preparation Plan

What should you do first when you think, I want to sell my business?

When an owner says "I want to sell my business," the most useful next step is usually preparation, not listing. Buyers, lenders, and their advisers will review the company in detail. Issues that are easy to fix with a year of lead time can lower the price or stop a deal when they surface during due diligence.

The plan below spreads that preparation across twelve months in four quarters. Treat it as a typical plan, not a promise. Some businesses are ready in less time. Others need longer, especially when the owner performs most of the critical work personally or when the books need significant cleanup. The order matters more than the exact calendar. For the full sale process once preparation is done, see our guide on how to sell a business.

What happens in months 1 to 3: Financial cleanup?

The first quarter focuses on the numbers, because every later conversation depends on them. A buyer pays for the earnings they can verify, and a lender will finance only what the records support.

Reconcile the books with the tax returns. Your profit and loss statements should tie to the returns you filed. Unexplained gaps between the two are among the first things a buyer's accountant will question.

Separate personal and business spending. Stop running personal expenses through the company going forward. For past years, identify those expenses so they can be documented as add backs rather than left as unexplained costs.

Move to accrual reporting if practical. Many small businesses keep cash basis books. Accrual statements make revenue and expenses easier to match by period, which helps buyers understand trends. Ask your CPA whether a switch makes sense for your business.

Gather three years of records. Assemble tax returns, monthly profit and loss statements, balance sheets, bank statements, payroll reports, and sales tax filings. Store them in one organized folder.

Consider a review by an outside CPA. A reviewed set of financial statements is not required for most small business sales, but outside review can catch issues before a buyer does.

How do you document add backs in the first quarter?

Add backs are expenses that appear on the books but will not continue under a new owner. Recasting the financials with documented add backs shows a buyer the earnings the business can produce for them. This figure is often called seller's discretionary earnings in smaller sales, and our guide on sellers discretionary earnings explains the calculation.

Common add backs include:

• Owner salary and benefits above what a hired manager would cost
• Personal vehicle, phone, travel, or insurance expenses paid by the business
• One time costs such as a lawsuit settlement, a major repair, or a relocation
• Interest and depreciation, depending on the earnings measure being used
• Family members on payroll who do not perform a role the business needs

Every add back needs a receipt, invoice, or ledger entry behind it. Buyers and lenders disregard add backs they cannot verify, and an aggressive list without support reduces credibility on everything else.

What happens in months 4 to 6: Reducing owner dependence?

The second quarter addresses the biggest discount factor in many small businesses: the company depends on the owner. If customers call you directly, if you are the only person who can quote a job, or if the key supplier relationship exists in your phone, a buyer is purchasing risk.

Write down how the work gets done. Document recurring processes such as quoting, scheduling, purchasing, hiring, payroll, and month end close. A simple written procedure is enough. The goal is to show that the business runs on systems.

Delegate decisions to managers. Choose one or two areas you currently control and hand them to a manager or senior employee. Give it months, so the change shows up in results before a buyer asks.

Introduce staff to key customers and vendors. Customer relationships that run through an employee transfer more easily than relationships that run only through the owner.

Address customer concentration. If one customer accounts for a large share of revenue, a buyer will see that as a risk. You cannot change concentration quickly, but you can document the relationship, put a written contract in place if one does not exist, and add new customers over the year.

How should you handle key employees during preparation?

Key employees often matter as much to a buyer as the financial statements. A buyer will want to know who stays after closing and whether those people are likely to remain.

Identify the employees whose departure would hurt operations. Review their compensation against the market. Some owners put retention or stay bonuses in place that pay out after a successful transition. Whether and when to tell these employees about a planned sale is a judgment call that depends on how much you rely on each person and how likely the news is to spread. In most cases, the broader staff is told late in the process.

What happens in months 7 to 9: Contracts, lease, licenses, and equipment?

The third quarter focuses on everything a buyer's attorney will review. Problems here rarely kill a deal outright, but they can delay closing or force a price adjustment.

Review the lease. Check the remaining term, renewal options, and whether the landlord must consent to an assignment. Buyers and SBA lenders often require a lease term long enough to cover the loan. If the term is short, start talking with the landlord now about an extension or renewal option.

Review customer and vendor contracts. Look for assignment restrictions and change of control clauses. Some contracts require consent before they can transfer to a new owner. Make a list of every consent you will need.

Confirm licenses and permits. Some licenses transfer with the business. Others must be reissued to the new owner, and some require the buyer to qualify independently. List each license, the issuing agency, and the expiration date. Ask counsel which ones will need action at closing.

Inventory the equipment. Create a list of major equipment with age, condition, and maintenance history. Repair or replace items a buyer would flag. Confirm which equipment is owned, leased, or financed, since liens must be addressed at closing.

Clean up corporate records. Make sure the entity is in good standing with the state, ownership records are accurate, and any past disputes are resolved or documented.

When should you get a broker opinion of value?

Around the ninth month is a practical time, though some owners request one earlier to decide whether a sale makes sense at all. A broker opinion of value is a market based estimate of the price a business is likely to bring, prepared by a business broker using recast financials and the broker's view of current buyer demand.

A broker opinion of value is not a certified appraisal. It is not prepared to appraisal standards and should not be used where a court, a lender, or a tax authority requires a formal appraisal from a credentialed appraiser. For deciding whether and when to sell, and for setting an asking price, it is usually the right tool. Our business valuation page describes what that review includes.

The opinion often reveals the issues that have the most effect on price, which gives you a final quarter to address them.

What happens in months 10 to 12: Engaging a broker and going to market?

The final quarter turns preparation into a sale process.

1. 01Interview brokers. Ask about experience with businesses similar to yours, marketing approach, buyer screening, and fee terms. Our guide on what a business broker is and how to vet one lists the questions to ask.
2. 02Sign an engagement agreement. Have your attorney review the term, exclusivity, fee definition, and tail period.
3. 03Prepare marketing materials. The broker drafts a blind teaser and a confidential information memorandum based on your organized records.
4. 04Set up a data room. Load the documents you gathered over the year so due diligence can start quickly once a letter of intent is signed.
5. 05Keep running the business. Revenue and margins during the sale period receive close scrutiny. Owners who let performance slip while marketing the company give buyers a reason to renegotiate.

How does the plan fit together?

The table below summarizes the typical sequence. Adjust it to your business; some steps will take longer and some will not apply.

What if you need to sell sooner than 12 months?

Not every owner has a year. Health, partnership disputes, relocation, or an unsolicited offer can compress the timeline. In that case, prioritize the items buyers weigh most: reconciled financials, documented add backs, and the lease. Those three issues affect financing and price more directly than most others. A broker can also help decide which issues are worth fixing before going to market and which are better disclosed and priced into the deal.

When you are ready to begin, our sell your business hub explains how a Forge engagement works and what to prepare for the first conversation.