Business Sale Checklist: 12 Steps Before Listing

Selling your business is a complex process, and proper preparation is non-negotiable. Without it, you risk losing value, delaying the sale, or scaring off buyers. This checklist simplifies the process, breaking it into 12 actionable steps to ensure your business is ready to attract serious buyers and secure the best deal.

Key Takeaways:

• Start Early: Begin preparing 12–24 months before listing your business.
• Organize Financials: Clean up your records, calculate Seller’s Discretionary Earnings (SDE), and resolve tax issues.
• Get a Valuation: Hire a certified expert to assess your business’s worth and address risks.
• Prepare Legal Documents: Gather and update contracts, licenses, and compliance records.
• Screen Buyers: Use NDAs and a structured process to identify qualified buyers.
• Fix Weaknesses: Resolve operational issues, document processes, and enhance physical spaces.

Why It Matters: Businesses that are well-prepared sell faster (20–30% quicker) and for higher valuations (10–15% more). This guide ensures you’re ready for a smooth, profitable sale.

How to Prepare a Business For Sale Checklist. How to Sell a Business

Step 1: Organize Your Financial Records

Getting your financial records in order is the first step to preparing your business for sale. These records provide a clear picture of your business's financial health and are one of the first things potential buyers will scrutinize. Organized, accurate data sets the stage for a smooth transaction.

"The difference between successful and failed transactions often comes down to rigorous financial due diligence and meticulous preparation." - Sidharth Ramsinghaney, Director of Corporate Strategy and Operations, Twilio

This step is crucial when you consider that cash flow issues are responsible for 82% of small business failures.

Collect Your Financial Documents

Begin by gathering three to five years of financial records. Key documents include:

• Profit and Loss Statements
• Balance Sheets
• Cash Flow Statements
• Tax Returns for the same period

These records validate your profitability and demonstrate compliance with tax laws. Additionally, prepare Accounts Receivable and Payable reports to give buyers a snapshot of your business's liquidity and cash cycle.

You'll also need a detailed list of assets and liabilities. Assets may include equipment, inventory, intellectual property, and customer relationships. On the liabilities side, disclose all debts and financial obligations. Transparency is critical - hiding liabilities can damage trust and jeopardize the sale.

For extra assurance, consider having a CPA review your financial records before presenting them to buyers.

Calculate Seller's Discretionary Earnings (SDE)

Seller's Discretionary Earnings (SDE) is a key metric that shows the true earning potential of your business. It adjusts net income to reflect the actual cash flow available to a new owner by adding back certain expenses that won't carry over after the sale.

"Seller's discretionary earnings (SDE) is a measure of the earnings of a business and is the most common measure of cash flow used to value a small business." - Jacob Orosz, President of Morgan & Westfield

SDE includes adjustments for items like the owner's compensation, non-cash expenses (e.g., depreciation), and one-time costs. Here's a simple example:

Step	Description	Example Amount
Pre-Tax Income (EBT)	Starting point showing total earnings before taxes	$400,000
+ Owner's Compensation	Add back salary and payroll taxes paid to the owner	$100,000
+ Interest Expense	Add back net interest payments on loans	$30,000
+ Depreciation & Amortization	Add back non-cash expenses for asset depreciation	$40,000
+ Discretionary Expenses	Add back personal expenses like travel, meals, and entertainment	$60,000
+ Non-Recurring Expenses	Add back one-time costs such as legal fees or equipment repairs	$10,000
= Seller's Discretionary Earnings	Total cash flow available to the owner	$640,000

Normalizing the owner's salary ensures SDE reflects market standards. Discretionary expenses, such as personal travel or entertainment, are also added back since they won't continue under new ownership.

Fix Tax Compliance Problems

Unresolved tax issues can derail a sale faster than almost anything else. Buyers will be hesitant to proceed if they find unpaid tax liabilities during due diligence.

Start by reviewing your business's tax compliance to ensure all taxes - federal, state, and local - are up to date. This includes income taxes, payroll taxes, sales taxes, and property taxes. Pay special attention to sales tax nexus requirements if your business operates in multiple states. Even without a physical presence, you may owe taxes in states where you sell products or services.

Make sure exemption certificates are accurate and up to date to avoid unexpected liabilities. If you uncover any unpaid taxes, consider a voluntary disclosure agreement (VDA) to potentially reduce what you owe.

Step 2: Get a Professional Business Valuation

Once your financial records are in order, the next step is to secure a professional business valuation. This process does more than just assign a price to your company - it can uncover areas for improvement and potential risks that might impact its value. Addressing these factors before listing your business can strengthen your position during negotiations with seasoned buyers. Essentially, this step builds on your organized financials to sharpen your competitive edge in the marketplace.

Hire a Certified Business Valuation Service

Not all valuation professionals are created equal, so it’s crucial to choose someone with the right credentials and experience. Look for certifications like CVA, ABV, ASA, CBA, or CFA, and ensure the expert has a solid track record in your industry. When evaluating candidates, focus on three critical factors: their qualifications, their experience with businesses similar to yours, and their ability to provide an unbiased valuation. Don’t hesitate to ask about their previous work and whether they can defend their valuation if challenged.

The cost of a professional valuation usually falls between $6,000 and $20,000 or more. It’s wise to get this done well ahead of time, giving you the opportunity to address any issues and maximize your business’s value.

Learn Common Valuation Methods

Understanding how valuations are calculated can help you negotiate more effectively with potential buyers. Most valuations rely on methods like EBITDA or SDE, multiplied by a standard industry factor. For smaller businesses, SDE is often used because of the owner's significant involvement, while larger companies typically lean on EBITDA multiples. In cases where earnings aren’t the focus, asset-based approaches may be applied.

Valuation professionals also evaluate risks like customer concentration and competitive positioning, as well as intangible assets such as intellectual property and brand reputation. Buyers in today’s market prefer businesses that are transparent and well-documented, so aligning your operations with these expectations can make a big difference in perceived value.

Create a Valuation Summary

A well-crafted valuation summary can serve as a powerful tool when presenting your business to potential buyers. Work closely with your valuation expert to create a concise document that highlights your company’s strengths while addressing any potential concerns. Include key metrics such as normalized earnings, growth trends, and comparisons within your industry.

Tailor the summary to appeal to specific buyer groups - whether they’re strategic buyers, private equity firms, or family offices. Emphasize your competitive advantages and growth potential to minimize perceived risks and position your business as an attractive investment opportunity. This approach not only showcases your business’s value but also helps buyers see how it stacks up against other opportunities in the market.

Step 3: Organize Legal and Business Documents

After completing your valuation in Step 2, it’s time to focus on organizing your legal and business documents. Proper documentation not only streamlines the due diligence process but also demonstrates professionalism and credibility to potential buyers. Missing or outdated paperwork can slow down negotiations or even lower your business’s perceived worth.

Gather Legal Documents

To ensure everything is in order, sort your legal documents into five key categories: financial, corporate, contracts, regulatory, and employee records. Each category plays a role in verifying your business’s legitimacy and operational standing.

• Financial Records: Refer back to Step 1 for the necessary financial documents.
• Corporate Records: Collect items like articles of incorporation, bylaws, shareholder agreements, and meeting minutes. These documents confirm your business’s legal existence and record major decisions.
• Contracts and Agreements: Include NDAs, intellectual property documents (like trademarks, patents, and copyrights), leases, and templates for business purchase and sale agreements. A complete intellectual property portfolio can enhance your business’s appeal.
• Regulatory Documents: Gather all licenses, permits, and compliance documents specific to your industry. For instance, if you’re in the alcohol industry, ensure you have all necessary licenses and regulatory approvals ready for review.
• Employee Records: Compile employment contracts, workforce details, non-disclosure agreements, and benefits information. These documents help buyers assess your team structure and identify any employment-related liabilities.

Update Vendor and Lease Agreements

Outdated agreements can be a headache during the sale process, potentially reducing your business’s value by as much as 9.2% per contract. To avoid this, review all vendor and lease agreements carefully.

• Vendor Agreements: Ensure compliance with terms and identify any breaches or deviations. Pay close attention to assignment clauses, vendor consent requirements, and change-of-control provisions, as these can affect the transfer process.
• Lease Agreements: Many leases require landlord consent for transfer. Review your lease terms to understand the process and contact your landlord early to clarify requirements. Also, check contract termination clauses to avoid penalties or unmet obligations before finalizing the sale.

Regularly reviewing contracts - ideally twice a year - can help keep terms relevant and enforceable, especially in industries like healthcare or finance where regulations are stricter.

Create a Secure Data Room

A secure data room is essential for organizing and protecting sensitive information during due diligence. Cloud-based platforms are particularly useful, offering features like document organization, access controls, and activity tracking.

Here’s how to set up your data room effectively:

• Organize Documents: Use clear folder structures for categories like financial records, legal documents, operational details, human resources, and regulatory compliance. A master index with document descriptions and last-updated dates adds clarity.
• Control Access: Grant full access to key stakeholders like your broker and attorney, while limiting buyers to documents relevant to their review stage. Many platforms let you track document access, offering insights into buyer interest.
• Enhance Security: Utilize encryption, audit trails, and instant access revocation to protect your data. Features like watermarking and screenshot prevention add another layer of protection.

Before uploading documents, address any inconsistencies or irregularities. Collaborate with legal and financial professionals to ensure everything is accurate and ready for review. You might also create a checklist for buyers to review before they access the data room. This transparency helps serious buyers prepare while discouraging those who aren’t ready to proceed.

Step 4: Plan Your Confidentiality and Buyer Screening

Protecting sensitive information while attracting qualified buyers is a balancing act. You need to share enough details to engage serious buyers but safeguard critical information that could harm your business if misused. With your legal documents and data room prepared, the next step is securing your information and screening buyers effectively.

Create a Confidentiality Agreement (NDA)

A well-crafted NDA is your first line of defense for sensitive data during the sale process. It also builds trust between you and potential buyers. To be effective, an NDA must include several key elements.

What to Include in an NDA:

• Identify all parties involved.
• Define what qualifies as "confidential information."
• Specify exceptions to confidentiality.
• Outline legal disclosure requirements.
• Detail remedies for breaches.
• Establish the confidentiality duration.

The agreement should clearly describe "confidential information" and define its scope, including which third parties can access it. Use restrictions are also crucial - they dictate how shared information can and cannot be used, along with time limits for confidentiality. Other important clauses include:

• Severability clauses, which address conditions that could invalidate the agreement.
• Indemnification clauses, which outline financial consequences for breaches.

Customizing your NDA to address industry-specific concerns is essential. For example, if your business relies on intellectual property or trade secrets, ensure these are clearly protected. A family-owned electronics manufacturer earning $3 million annually used NDAs with specific language to safeguard their manufacturing processes from being shared with outsiders.

Set Up Buyer Screening Process

Once your documentation is ready, you need to focus on identifying buyers who are serious and capable of closing the deal. As Jacob Orosz, President of Morgan & Westfield, explains:

"The major mistakes most entrepreneurs make during the early phases of a transaction are wasting energy on buyers who aren't qualified and judging the attractiveness of an offer without first obtaining background information on the buyer."

How to Screen Buyers:

• Define criteria for an ideal buyer, such as financial capacity, industry experience, and intent.
• Use a phased approach to release information gradually, protecting confidentiality.

Start by asking potential buyers about their motivation, relevant experience, financial resources (e.g., proof of funds), and their vision for the business. This initial filtering helps weed out casual inquiries.

After Initial Screening:

• Conduct deeper due diligence, including financial verification and reference checks.
• Contact references, review past transactions, and even hire a professional firm if needed.
• Schedule face-to-face meetings to evaluate communication skills, interpersonal fit, and alignment with your company’s culture.

Securing a Letter of Intent (LOI) is a key milestone. It demonstrates the buyer’s commitment and outlines the basic terms of the transaction. As Website Closers puts it:

"Qualifying buyers early on helps protect your energy and ensures you're focusing on those who are truly positioned to follow through, giving you greater confidence as you move the exit forward."

List What's Included and Excluded

A clear asset list is critical to avoid misunderstandings. It should detail what’s included in the sale and what’s excluded, covering both tangible and intangible assets.

Tangible Assets: Provide detailed descriptions, including unique identifiers like serial numbers. For instance, instead of just listing "commercial freezer", specify "2021 Atric Air AF49 commercial freezer in stainless steel, serial number 12345".

Intangible Assets: Clearly list assets like websites, email addresses, phone numbers, and social media accounts. Be specific to ensure no confusion arises later.

Excluded Assets: Define what’s not part of the deal. This is especially important if you’re selling only a portion of your business and retaining certain assets for ongoing operations. For example, Green & Co. Business Brokers advises:

"Including a detailed Asset List as part of the asset purchase contract or purchase agreement is the way that we ensure that all parties agree and are aware of the actual assets transferring to the new owner."

Also, disclose any leased or borrowed equipment on the asset list, as this impacts the transfer process. Avoid listing assets you don’t own, as this could lead to legal complications.

Step 5: Make Your Business More Attractive to Buyers

Now that you've set up confidentiality measures and established a buyer screening process, it's time to focus on presenting your business as a profitable, well-oiled machine. This involves tackling any potential concerns, documenting your operations clearly, and ensuring your business leaves a strong first impression. These efforts build on the foundational work you've already done - organizing financials, legal documents, and confidentiality protocols - to pave the way for a smooth transition.

Fix Business Problems

Once your finances and legal matters are in order, shift your attention to operational challenges. Conduct a thorough audit of your financial health, efficiency, market standing, and compliance with regulations. This step is crucial for identifying and addressing any weaknesses that could scare off buyers or lower your business's valuation.

• Reconcile financial statements, cut unnecessary costs, and restructure any substantial debt.
• Automate repetitive tasks to reduce dependence on key personnel.
• Adjust your customer base and marketing strategies for better balance.
• Resolve outstanding legal issues and update internal policies to meet current regulations.

Being upfront about any weaknesses and showing how you're addressing them can build trust with potential buyers. Also, make sure your asking price reflects the business's current state rather than any unproven future potential.

Document Business Processes

Clear and comprehensive documentation reassures buyers that your business can run smoothly even after the sale. A well-documented operation not only adds value during the valuation stage but also inspires confidence in buyers.

• Identify your essential business processes and create visual workflows, such as flowcharts.
• Develop Standard Operating Procedures (SOPs) for key functions to ensure consistency.
• Record daily procedures, policies, and critical tasks like employee onboarding, training, and scheduling.
• Maintain detailed records of Key Performance Indicators (KPIs), software licenses, maintenance schedules, and vendor contacts.
• Document financial management tasks - budgeting, forecasting, and tax compliance - as well as customer relationship practices like onboarding and feedback systems.
• Centralize all documentation for easy access and standardization.

As Garry Stephensen, Managing Director at Lloyds Brokers, puts it:

"Documenting processes not only adds value to your business during the business valuation phase but also instills confidence in potential buyers by providing transparency and clarity."

Make Physical Improvements

First impressions carry weight when selling a business. Improving the physical appearance and functionality of your property can make it more appealing to buyers and even boost its selling price. These upgrades not only help your property stand out but also address potential concerns uncovered during due diligence.

Studies reveal that 65% of sellers undertake at least two improvement projects to enhance their property's appeal, and a well-maintained property can sell for up to 10% more than one in average condition.

• Boost curb appeal by repainting the exterior and upgrading landscaping. Pressure washing can also make a big difference.
• Inside, refresh the space with neutral paint colors that create a warm, inviting atmosphere. Replace outdated cool grays with modern tones.
• Upgrade lighting to LED fixtures to create a contemporary look while cutting operational costs. LED lighting is linked to a 1.5% selling premium.
• Adopt energy-efficient measures like solar panels, LED lighting throughout the facility, and smart building technologies for HVAC control to attract eco-conscious buyers.

Real-world examples highlight the impact of these efforts. Take The Ellwood, a 28,000-square-foot office building. After renovations like restroom upgrades, tenant directories, security cameras, LED lighting, and HVAC improvements, its occupancy jumped from 40% to over 90%, even in a tough market. Similarly, Travis Drive, a 12,070-square-foot office building, was nearly vacant before undergoing interior and exterior updates, parking lot improvements, and energy-efficient lighting upgrades. Within six months, all 17 spaces were leased, and the building sold for 36% more than the total renovation cost after 16 months.

David Steckel, a home expert at Thumbtack, emphasizes:

"A well-maintained home is one of the best ways for homeowners to attract buyers. Thumbtack research finds a well-maintained home can sell for about 10% more than a similar home in average condition. Buyers are making life's biggest investment, and they want the peace of mind that they're investing in a home that was well cared for."

Finally, consider offering flexible deal terms, such as seller financing or earn-out arrangements, to appeal to serious buyers who recognize the value of your improvements.

Conclusion: Why Thorough Preparation Matters

Selling a business is no small feat, and success hinges on careful preparation. By following the steps in this checklist, you’ll pave the way for a smoother transaction, attract serious buyers, and secure top-dollar offers.

Industry data highlights the impact of preparation: businesses that are well-prepared sell 20–30% faster and achieve 10–15% higher valuations. They’re also less likely to encounter post-sale disputes or legal headaches. These numbers make one thing clear - preparation pays off.

Take this real-world example: a mid-sized manufacturing company in Texas spent six months organizing financial records and updating contracts. Their efforts attracted multiple qualified buyers, led to offers that exceeded the company’s valuation, and resulted in a closed deal within 90 days. In contrast, a less-prepared competitor struggled with repeated deal failures.

Expert guidance is another crucial piece of the puzzle. A team of advisors - attorneys, accountants, and valuation experts - can help you identify and fix potential issues early. These professionals ensure your documentation is compliant, assist in structuring deals strategically, and help you justify your asking price during negotiations.

When combined, these steps create a solid pre-sale strategy. From financial records to operational improvements, every piece works together to inspire buyer confidence and streamline the process.

Start preparing early to address weaknesses and make your sale as seamless as possible.

FAQs

What should I look for when selecting a certified business valuation expert?

When selecting a certified business valuation expert, look for someone with experience specific to your industry and credentials from respected organizations. It's important they adhere to fair value standards and have a history of delivering precise and dependable valuations. Membership in professional associations and passing rigorous valuation exams can also highlight their expertise and dedication to maintaining top-quality standards.

What steps should I take to ensure potential buyers are serious and qualified to purchase my business?

To make sure potential buyers are genuinely interested and capable, start by confirming their financial standing. Request proof of funds or a pre-approval letter for financing to verify they can afford the purchase. Reviewing their financial statements can also give you insight into whether they meet the financial demands of the business.

Next, assess their motivation and interest. Schedule interviews to learn why they’re drawn to your business and explore their background in your industry. This can help you determine if they’re not only committed but also a suitable match for the business.

Lastly, safeguard your business information by requiring buyers to sign a non-disclosure agreement (NDA) before sharing any sensitive details. These steps will help you focus on serious buyers and make the sale process smoother.

What operational issues should I fix before listing my business for sale?

Before putting your business on the market, it's important to tackle common operational issues that might turn off potential buyers. Problems like inconsistent workflows, disorganized finances, or poor inventory management can make your business less appealing. Addressing these areas ensures your operations are smooth and efficient, which is a big draw for serious buyers.

Here are some key areas to work on:

• Streamlining operations: Create standardized processes to ensure consistency and reduce reliance on specific team members.
• Building customer loyalty: Strengthen your relationships with customers to showcase a stable and loyal client base.
• Boosting brand visibility: Increase your business's presence and recognition to stand out in a competitive market.

Fixing these pain points not only increases your business's value but also simplifies the selling process.