What to Review Before Selling Your Business
Most business sales take twelve to thirty-six months from first serious conversation to closed transaction. Most of the pressure during that time points forward: find a buyer, negotiate a price, satisfy due diligence, close. What consistently gets underweighted is the backward-facing review - the work an owner should do before the first letter of intent is signed and before the business is put in front of any buyer at all.
That early work is hard to redo later. Deal structure, tax treatment, team retention, and personal financial planning all interact in ways that are expensive to unwind once a process is already in motion. The questions below are not the buyer's questions. They are the seller's questions, and they belong at the beginning, not the middle, of the process.
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Understanding What the Business Is Worth - Before Anyone Else Does
Sellers and buyers almost always start from different numbers when they first meet. The seller's number is usually anchored to what the business feels worth, built from years of effort and risk. The buyer's number is built from a multiple of a specific earnings metric, adjusted for industry, geography, customer concentration, and transferability.
Neither number is automatically correct, but the seller who has done preparatory work on valuation is better positioned to respond to a buyer's methodology rather than simply react to it.
Questions worth exploring with an advisor or business valuation professional before engaging any buyer:
- What multiple of EBITDA, SDE, or revenue is standard for businesses in this industry at this scale?
- Are there characteristics of this business - recurring revenue, long-term contracts, a diversified customer base - that support a higher multiple, and can they be documented?
- Are there characteristics - customer concentration, key-man dependence, near-term capital requirements - that will reduce the multiple, and can any of them be addressed before the sale process begins?
- What is a realistic range rather than a precise number, and what would need to be true for the business to fall at the high end of that range?
The valuation community - business appraisers, M&A advisors, and industry investment bankers - sets the conventions, and they vary considerably by industry. Getting an independent read on where a business falls before starting a process is one of the lowest-cost, highest-value steps a seller can take. The SEC's investor resources provide context on how financial metrics are used in business valuation, and FINRA's BrokerCheck is useful for vetting any M&A advisor who is also a registered broker-dealer.
The Tax Structure of the Deal Changes the Outcome Substantially
A letter of intent might say "$5 million." But the after-tax proceeds to a seller from a $5 million asset deal and a $5 million stock deal can differ by hundreds of thousands of dollars, depending on the structure, the assets involved, and the seller's individual tax situation.
The choice between an asset sale and a stock sale is the most consequential structural question, and buyers and sellers typically prefer opposite structures. Buyers often prefer asset deals because they can step up the basis of acquired assets. Sellers often prefer stock deals because gains may be taxed at long-term capital gains rates rather than ordinary income rates, at least for the portion representing goodwill.
Other structural questions that shape the tax outcome:
- If the deal includes installment payments or an earnout component, how is income recognized over time, and does that benefit or harm the seller's overall tax position?
- Are any assets being transferred - real estate, equipment, intellectual property - that have different tax treatment from the goodwill component?
- Has the seller considered whether Section 1202 Qualified Small Business Stock treatment applies to any portion of the transaction?
- Is there a state-level capital gains or business income tax that interacts with the federal treatment in meaningful ways?
None of these questions are answerable from a general description. They require a tax professional who has reviewed the actual structure with the actual numbers. The IRS's guidance on business dispositions provides background, but the specific position requires qualified tax counsel engaged early - before any structure is committed to.
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Preparing for What Buyers Will Find in Due Diligence
Every serious buyer will conduct due diligence. What they find in that process shapes not only the final price but whether the deal closes at all. Sellers who have done their own internal review before the process starts tend to fare better on both counts.
A short list of what buyers typically investigate and what sellers benefit from reviewing first:
Financial records. Three to five years of clean, reviewed or audited financials - with any owner adjustments documented and defensible - form the foundation of buyer confidence. Gaps here create delays; discrepancies create discounts.
Legal documents. Contracts with customers and suppliers, leases, IP assignments, and employment agreements all need to be current, accessible, and accurate. A missing contract or an expired exclusive arrangement discovered mid-diligence is a negotiating moment the seller did not choose.
Employee matters. Key employee retention is a frequent concern for buyers. Who is critical to the business's operation? What retention arrangements, if any, exist? What happens if a critical person leaves before or after close?
Customer concentration. If any single customer represents more than 15 to 20 percent of revenue, buyers will request extensive documentation on that relationship - its history, contract terms, and the risk of attrition under new ownership.
Operational dependencies. Businesses that run without the owner in the room command higher multiples than those that do not. Identifying and beginning to address those dependencies before a sale process starts is one of the more durable improvements a seller can make.
What Happens to You After the Transaction Closes
Business owners frequently focus intensively on the transaction and then find themselves surprised by the post-close period. The surprise is usually about what was not prepared for: the non-compete restrictions, the management transition, the tax liability due the following April, and the question of what to do with the proceeds.
Questions that belong in the pre-sale review alongside the transaction work:
- What does the non-compete agreement prohibit, geographically and temporally? Is it negotiable, and what does the seller want to be doing after close?
- What is the earnout structure, if any, and which metrics does it depend on? Who controls those metrics after the transaction closes?
- What is the timeline for the personal tax liability from the sale, and how does it affect estimated tax payments in the months immediately following?
- What is the plan for the proceeds in the period between close and any longer-term investment commitment?
The last question is more important than it sounds. Sellers sometimes move proceeds into investment accounts under time pressure - self-imposed or coming from advisors with an interest in placing those assets. The alternative - parking proceeds in a conservative, liquid position while the seller's situation settles and a deliberate plan is developed - is not always the exciting answer, but it is often the right one.
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Assembling the Right Team Before You Need Them
The professionals a business owner needs for a successful sale - M&A attorney, transaction tax advisor, business appraiser, and financial planner for the proceeds - each hold a different piece of the work. They function well when coordinated and poorly when working in isolation.
The most common structural error sellers make is assembling the team after a buyer has been identified, when time pressure is real and the seller is negotiating from a reactive posture. A better structure:
- Engage a tax professional and financial planner for a pre-sale review while there is no clock running.
- Get an independent valuation from a qualified business appraiser before any buyer is engaged.
- Select transaction counsel - an M&A attorney - before the first letter of intent arrives.
The order matters because each advisor's work informs the others. The tax professional's position may affect the ideal deal structure before an M&A attorney is drafting term sheets. The financial planner's assessment of post-close needs may affect how the seller negotiates the earnout or installment payment structure.
Capivise connects business owners with advisors who specialize in this kind of coordinated pre-sale work. The business sale advisor matching page lists the specific professional criteria relevant to this type of engagement. For owners who want to review the vetting questions before their first advisor conversation, the questions to ask an advisor and advisor verification pages cover the standard checkpoints. The advisor match page is the starting point for matching based on the specific circumstances of the transaction.
NAPFA maintains a directory of fee-only financial planners who have signed a fiduciary oath, and the CFP Board provides a searchable directory of certified financial planners. Both are useful resources for verifying credentials and disciplinary standing before engaging any advisor.
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The Work That Cannot Be Undone
Business sales are not reversible. Once a structure is committed to, once a non-compete is signed, once the proceeds land in an account - those decisions live with the seller for years, sometimes decades. The pre-sale review described here is the only real opportunity to set those outcomes up well before the clock is running.
None of this preparation is exotic, and none of it is particularly expensive relative to the stakes. A few months of deliberate work - reviewing valuation, tax structure, due diligence readiness, post-close planning, and team assembly before a buyer is in the room - is one of the few activities with a consistently large return on time invested.
The question is not whether to do this preparation. The question is whether to do it early enough for the work to matter.
