Get top dollar when you sell your business
Plan ahead with intention and the payoff can be tens of thousands more at closing.
Retirement time has come and you’re ready to sell your business to support your remaining years. What you get for it comes down to three numbers: your asking price, what you believe the business is worth, and what a buyer is willing to pay. The good news is that a lot of what closes the gap between those numbers is fully in your control. Here is a list of things that make the difference between prolonged haggling and a quick, fat payout. By being intentional and planning ahead, you can demand and receive more for your business.
The first thing every buyer will ask for is access to your books. Having clean books that are updated and structured to fit your business will be the most critical thing to prepare. It’s more than categorizing correctly. The reconciliation log should show the work was done regularly, soon after each month closed. A log that shows everything reconciled in one batch at year-end is a red flag. It tells a buyer the books were ignored all year and crammed together at the last minute. Job costs should be separated from administrative and overhead costs. The entire balance sheet should be current and verified. This is probably the area neglected the most that I see. No personal expenses should show up in the books, even if they are correctly categorized under owner distributions. The books should also tie out to the tax returns every year. I see many CPA’s who prepare taxes but don’t enter any adjusting entries to the books. The clean books should go back 3 years. It’s not enough to clean up the books right before a sale. A buyer wants to see that they’ve been kept this way all along.
Customer contracts and receivables is the next thing a buyer will carefully examine. Recurring maintenance contracts are more valuable to buyers. Using written contracts vetted by a business lawyer is also crucial, because it lets those customer relationships transfer cleanly to the new owner. No single customer should be more than 20% of your total revenue. Customers should be paying within 60 days. There should not be more than 10% of receivables sitting unpaid past 90 days. A stack of old past due invoices tells a buyer that your cash position is weaker than your sales numbers look.
Next a buyer will review profit margins. They want to know that your business makes healthy margins overall, plus reasonable margins on every service. This includes having profit and cash left over after crews are paid, material invoices are covered and overhead has been handled. If they can’t easily verify this from your books, they are likely to haggle or even walk away.
Payroll will also need to be clean for a buyer to be happy. Workers need to be classified correctly either as W-2 employees or independent contractors consistent with IRS guidelines. Vendors requiring 1099s should be getting accurate forms every January. Employees should have the correct workers’ compensation classification code.
Other potential liabilities are a factor. A buyer will ask about any disputes, broken contracts, pending litigation, or job liens. You will be asked if there could be any labor or wage claims or complaints, or if there are ongoing workers’ compensation claims. They will ask about any insurance claims, either from a job or vehicle accident or anything else. If there is anything unresolved, work on it now before it kills any potential sale.
Finally, any buyer will investigate if the business can actually run without you at the top. This means there are written processes for how the work gets done. The majority of the company’s work is delegated, with goal setting and final approvals resting at the top. There is more than one key person for banking, payroll, and decisions. Customer relations belong to the company and not you personally. If the business collapses when you walk out the door, the buyer isn’t really getting a business. They’re getting a job, and they won’t pay business prices for a job.
Every item on this list has one thing in common: it’s something you can fix while you still own the business. None of it requires a buyer at the table or a broker on the phone. It just requires starting early enough that the work is done and proven by the time someone wants to look. The owners who walk away with the most aren’t the ones who scrambled in the final months. They’re the ones who ran a clean, organized business for years and had nothing to explain away when the buyer came looking.
If selling is somewhere on your horizon, even years out, the best time to get your books and your business sale-ready is now. I help trades and service business owners get there. Book a discovery call and let’s talk about where your business stands and what it would take to get top dollar when you’re ready.