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The Business Owner’s Guide
How To Prepare Your Business for Sale
© 2025 Donald L. Beezley
For every business there is a time of transition. As our population continues to age, more businesses will come on the market. We want you to maximize your profit when that time comes. It’s critical to prepare your business for sale now so it’s better positioned when it comes time to sell. It’s my hope this simple guide will help you make tens or even hundreds of thousands of dollars more when it’s time to sell your business.
In this guide we’ll cover some key factors that affect how a buyer looks at your business:
Business values—begin with the end in mind | Risk of transition—You and Customers |
Financial presentation | Management team |
Growth potential | Business operations |
Do you know what your business is worth and why? The remainder of this guide is going to help you focus on areas that can help your business be more attractive to buyers, but it’s essential to know what drives value.
Every buyer has to do three things once they buy your business:
1) Pay themselves; 2) Service their acquisition debt; 3) Earn a return on their investment in your business.
The most important financial number in that equation is “EBITDA”—Earnings Before Interest, Taxes, Depreciation & Amortization. This is the cash flow available to the new owner to pay themselves, service their debt, and earn a return on their investment.
The buyer has to take what causes your business to generate earnings (EBITDA) and turn that into a financial number they are willing to pay that reflects the risk of owning your business going forward.
Understanding EBITDA
If this is your Income Statement: This is your “EBITDA”:
Sales | $10,000,000 | Net Income | $ 900,000 | |
– COGS | $ 6,000,000 | + Interest | $ 250,000 | |
Gross Profit | $ 4,000,000 | + Depreciation | $ 350,000 | |
= EBITDA | $ 1,500,000 | |||
Operating expenses | $ 2,500,000 | |||
+ Interest | $ 250,000 | |||
+ Depreciation | $ 350,000 | |||
Total Expenses | $ 3,100,000 | |||
NET Income | $ 900,000 |
Other items will also likely be added to or deducted from EBITDA, such as owner compensation, and personal expenses or increased rent expense to reflect market rent if you own the building and underpay rent, or vice versa, cost of any needed replacement employees after you leave, etc. So it is really “Adjusted EBITDA” that will be assessed. |
Different methods for turning a future financial stream into a current dollar value are called “Discounting” or “Capitalizing” earnings. It’s a way to answer the question, “what is a future stream of cash flow worth to me today, given the risk it entails?” For most small businesses, the capitalization of earnings rate is going to be somewhere between 25% and 33%. For the above business, this would indicate a value as:
$1,500,000/.25=$6,000,000 This could also be expressed as a “multiple of earnings”: 1.5X4=6.0
$1,500,000/.33=$4,545,000 This could also be expressed as a “multiple of earnings”: 1.5X3=4.5
That’s quite a range—a difference of $1,455,000! One of the goals of this guide is to move you more towards the high end—or beyond it—rather than the low end. Making an extra million and a half bucks when you sell is worth some work!
This is one of the biggest problems we see—poor and/or inaccurate financial statements. Financial statements (“P&L” and Balance Sheet) should be accurately generated on a monthly basis, by a qualified internal person or reliable outside bookkeeping service. Year-end financials should be updated to match your (CPA-prepared) tax return. You should also have a pro forma plan in place. What I call Planning for ProfitsTM.
Important note: Your tax return is the WORST reason to do financial statements. Your financial statements should be used on an ongoing basis to help you manage your business and maximize your profitability. If you’re not sure how to do this, we should talk. “I hate accounting” is not an excuse. You can learn to use these tools to make tens or hundreds of thousands of dollars more per year, and even millions more when you sell.
Bad financial information equals higher risk to the buyer. Higher risk means lower value.
Is your business growing, flat, or declining? Do you know why? Having a strategic vision for your business and setting goals with processes in place to achieve them is essential. If you’re not sure how, or not getting the results you want, get help, from me or someone else. You’ve heard of “working on your business, not just in your business.” It’s a hard discipline to master, but it’s essential. A business with a positive growth trend and a plan to keep it going is worth more—it has a clear path and less risk.
This is the biggest fear for most buyers. You have a great business that makes great money—but what will happen when you leave? You must address ways to reduce this risk. The first task is to be sure you have a key employee who can do much of what you do, an “operations manager” of sorts. Consider this: Could your business function for six months if you were gone? If not, you have changes to make.
Call out: Customer concentration—having one customer be a big part of your business is a high-risk, red flag. If one customer is 50% or more of your business, what happens to the buyer of the business (or you for that matter!) if they leave? This risk and issue alone can torpedo the sale of an otherwise great business. The goal, if possible, should be to have no single customer be more than 10% of sales, by increasing your sales to other/new customers. |
It’s also common for most, or even all, of a company’s sales to go through the owner—after all, that’s how you built the business. But all those customer relationships that are so valuable for you represent a major risk of transition for the buyer. Lower this risk and you greatly increase your company’s value and attraction to buyers. Think about how to transition those relationships so this risk is reduced. Less risk equals more value.
Call out: Run your business like a franchise—document basic procedures in an operations manual. This is not only helpful to a new owner, providing them with confidence your business is well-run, it will also help you (force you?) to think about how you run your business and what you could do better. A couple of great resources to help you think about this in a structured manner are two books: The E Myth by Michael Gerber and Traction by Gino Wickman. |
I alluded to this in the prior section. Who can do what you do? Do all sales or operations run through you, or do you have key managers in place? You might say, I can’t afford it! But can you afford not to? Regardless of a sale, what if you are sick or injured? The better question though is: how can you afford it? That’s where good business management—planning, financial controls, operational procedures and so on–come in. You can plan for it in your goal setting. Increase your cash flow to support your team. I call it, Planning for ProfitsTM.
The last call out brings us to operations. Businesses evolve over time as they grow, and you get done what you can. You wear 18 hats a day, put out 19 fires, and clean the toilets. It’s important to take the time to step back and think of your business as a whole. How do the pieces go together? A well thought-out and documented operations manual reflects that. So are the financial tools of the business—are your financial statements designed so a mere glance tells you what you need to know about the financial health of the business?
Also assess your “plant and equipment.” Is your signage and facility in attractive shape? Is your website professional and up-to-date? Have you replaced equipment when appropriate? Is your place well-organized or kind of a mess? Strength in these areas makes your business a lower risk and therefore a more valuable asset for any buyer to acquire, i.e., they will pay more.
Final Notes
There are only so many things we can cover in such a short space, but hopefully I’ve given you some things to think about in terms of preparing your business for sale. If you were selling your car, you’d probably fix some things, vacuum the inside, and wash and polish the outside in the hope of selling it faster or getting a few hundred dollars more. In a competitive business sales environment, it’s just as important to take the time to put some “polish” on your business. Also think about who your exit team will be: Your broker, Attorney, and CPA are key players for your sale.
Cement those relationships now. The things we have talked about here are not only about value, but about salability too—how attractive is your business to a buyer compared to other businesses, regardless of the raw money it makes.
Thank you
Congratulations on making it to this point in the guide! And congrats to you and your team for building a great business. Business owners are some of the best—and most important—people in the world. They are heroes. They take risks, fulfill needs, create opportunity and jobs, and blaze new trails. They are responsible for creating the highest standard of living in the world. So, again, thank you, and congratulations!
Don Beezley is President of Proforma Partners, LLC and a Business Certified Appraiser (BCA) with over three decades of M&A, banking, and business operations experience.
4450 Arapahoe Avenue, Suite 100 | Boulder CO 80303