Life happens, regardless of your time horizon, you should always be ready to sell. 10 Key Tips for Transaction Readiness

Companies that prioritize being transaction-ready are often rewarded with timely sales at strong valuations. Whether you’re planning to sell your business soon or years from now, disciplined preparation can make all the difference. Having personally exited ventures and advised companies on employee stock ownership plans (ESOPs) and mergers and acquisitions (M&A), I’ve witnessed firsthand the value of being prepared for any exit scenario.

If you're contemplating a deal or simply want to ensure your business is ready for future opportunities, these 10 preparation tips will help you start planning today.

1. Ensure Your Financials Have Integrity

Your financial statements are your company’s scorecard. No one buys a business without trusting the numbers, and potential buyers will scrutinize your financials carefully. To be transaction-ready:

• Engage a CPA firm to conduct annual audits or reviews of your financials.

• Keep your financial records accurate, up to date, and transparent.

Not having reviewed or audited financials can prolong the due diligence process and reduce the buyer’s confidence, ultimately impacting the value of the deal.

2. Normalize Your EBITDA

Most businesses have certain expenses that won’t continue after a sale, such as the owner's salary, travel, insurance, or family-related costs. These expenses can be added back to calculate your Normalized EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which gives potential buyers a clearer picture of your true earnings.

• Document all add-backs related to one-time expenses or initiatives, like a software upgrade or office relocation.

• Properly normalizing your EBITDA can significantly improve the sale price by accurately reflecting the true profitability of your business.

3. Get a Quality of Earnings Report (QOE)

A Quality of Earnings (QOE) Report assesses the accuracy and sustainability of your company’s earnings and provides a detailed analysis of your financial health. Conducting a QOE will give buyers more confidence in the numbers and can expedite the transaction process.

• A QOE highlights non-recurring expenses and ensures your EBITDA adjustments are fully validated.

• Buyers increasingly request QOEs, so having one ready helps you stay ahead of the game and ensures transparency throughout the deal.

4. Document Key Relationships

Potential buyers will want to know that your business is built on a strong foundation of relationships. Be sure to have well-organized documentation for:

• Vendors

• Clients

• Employment agreements

• Licenses, leases, and permits

• Intellectual property rights

• Insurance policies

By organizing this critical information, you’ll build trust with potential buyers and simplify their due diligence process.

5. Settle Any Lawsuits

Whether they are frivolous or serious, any legal disputes will create uncertainty in the eyes of buyers. Unresolved legal matters can significantly reduce the value of your company or even delay the deal.

• Settle ongoing lawsuits before putting your company up for sale.

• The more certainty you provide to buyers, the more confident they’ll be in offering a competitive price.

6. Be Mindful of Concentrations

One of the biggest risks for buyers is a business that relies too heavily on a single vendor or customer. Diversification within your customer and vendor base enhances your company’s resilience and increases its attractiveness to potential buyers.

• Aim to reduce dependency on any one client or supplier to mitigate risk and increase your valuation.

7. Be an Owner, Not an Operator

Businesses that rely heavily on the owner for day-to-day operations are harder to sell. Buyers are interested in purchasing companies that can run smoothly without the owner's constant involvement.

• Focus on building a strong management team that can continue to operate the business independently.

• If your company is overly dependent on you, take steps to delegate responsibilities and remove yourself from key operational roles.

8. Don’t Grow Complacent

Consistent optimization of your business will make it more valuable when it’s time to sell. New sales initiatives, cost-cutting strategies, and product innovations help boost profits and command higher sale prices.

• Keep looking for ways to maximize profit and drive growth to increase your business’s appeal.

9. Have Your Story Ready

Telling a compelling narrative about your company’s journey is crucial when marketing your business for sale. Buyers want to know:

• How did your company start?

• What sets your business apart from competitors?

• What are your future growth prospects?

A well-crafted story, coupled with a confidential information memorandum (CIM), can inspire buyer interest and help you achieve a higher price. A strong narrative, combined with detailed financials and projections, provides buyers with a clear view of your company’s potential.

10. Timing and Momentum Are Essential

Timing plays a crucial role in maximizing the value of your business. If your company is experiencing growth—whether through new products, services, or market expansion—capitalize on that momentum. The market appreciates growing businesses, and that momentum can lead to better offers.

• Assess whether your business has products or services that are gaining traction or increasing profits before you pursue a sale.

• Selling when your company is on an upward trajectory can lead to a premium price.

Does M&A Readiness Really Matter?

Yes, it matters more than you might think. Consider this scenario: In just a few short years, your small business has expanded into a large company with hundreds of employees and high-profile clients. Your limited partner wants to exit, and you realize it’s the perfect time to capitalize on the peaking market. However, a sale in this window is only possible if you’ve done the hard work of preparing your company ahead of time.

I’ve experienced this firsthand. When my company was ready for sale, our audited financials and well-documented operations enabled a quick and smooth transaction. Our preparation, coupled with market momentum, allowed for a significant exit.

Conclusion: Be Ready to Sell

Whether you’re planning a sale in the near future or just want to be prepared, transaction readiness is key to ensuring you’re in the best position to take advantage of opportunities. Properly preparing your company—financially, operationally, and strategically—allows you to seize the moment and maximize your value when the right time comes.

Take the time now to organize your financials, optimize your operations, and create a compelling narrative that will position your business for success when it’s time to make a deal.