Selling Your Business: What to Do 12–24 Months Before Going to Market

For many business owners, selling a business is the culmination of decades of work.

Yet one of the most common mistakes we see is beginning preparations only once the decision to sell has already been made.

In reality, some of the most valuable work happens well before a buyer is approached.

If you believe you may sell your business within the next few years, there are a number of things you can do now to improve both the value of the business and the likelihood of completing a successful transaction.

Start by looking at the business through a buyer's eyes

Owners naturally view their businesses through the lens of what they have built: longstanding customers, loyal employees, intellectual property, industry relationships and years of accumulated knowledge.

A buyer looks at the same business differently.

They are asking:

• How sustainable are the earnings?
• How dependent is the business on the owner?
• What happens if a major customer leaves?
• Can the business continue to grow under new ownership?
• Are the financials reliable?
• What risks am I inheriting?
• What opportunities could I unlock that the current owner has not yet pursued?

Preparing for sale means identifying these questions before a buyer does.

1. Get your financial information into shape

Good businesses can lose momentum in a sale process because their financial information is difficult to understand.

Ideally, buyers should be able to see several years of clean historical financial performance, together with a clear picture of current trading.

Areas worth reviewing include:

• consistency between management accounts and statutory accounts
• separation of personal or non-business expenses
• one-off or non-recurring items
• owner remuneration
• related-party expenses
• working capital requirements
• capital expenditure
• revenue and gross margin by customer, product or service line
• monthly historical trading.

This becomes particularly important when determining normalised EBITDA — the earnings level a buyer may use when assessing value.

A credible normalisation should be defensible. Buyers are unlikely to give full value to adjustments that cannot be substantiated.

2. Reduce excessive reliance on the owner

One of the most important questions in private-company M&A is: What happens when the owner leaves?

A business that relies heavily on its founder for sales, operational decisions, supplier relationships or technical knowledge can be more difficult for a buyer to acquire.

That does not mean an owner must remove themselves entirely. It means making the business increasingly transferable.

This can include:

• strengthening the senior management team
• delegating important customer relationships
• documenting key processes
• introducing clearer reporting lines
• ensuring critical intellectual property sits within the company
• formalising supplier and customer arrangements where appropriate.

The objective is to demonstrate that the business is an organisation a buyer can own — rather than simply a job performed exceptionally well by its founder.

3. Understand customer concentration

Strong customer relationships can be extremely valuable.

But if one or two customers account for a disproportionate percentage of revenue or earnings, buyers will examine that concentration carefully.

Consider:

• How long have these customers been with the business?
• Is revenue recurring or project based?
• Are contracts in place?
• When do those contracts expire?
• Is the relationship held by several people or solely by the owner?
• How difficult would it be for the customer to switch providers?

Where concentration cannot realistically be reduced before a transaction, the next best thing is often to demonstrate the quality and longevity of those relationships.

4. Make the growth story credible

Buyers generally acquire businesses because of what they believe those businesses can become, not simply because of what they have been. A good growth story should therefore be more than a hockey-stick forecast. It might include:

• additional products or services
• expansion into new geographies
• cross-selling to existing customers
• available manufacturing capacity
• increasing recurring revenue
• new distribution channels
• an underdeveloped sales function
• identifiable acquisition opportunities.

The strongest opportunities are usually supported by evidence.

5. Clean up contracts, ownership and documentation

Due diligence will examine considerably more than the financial statements. Before commencing a sale, it is worth reviewing whether the company has appropriate documentation around matters such as:

• employment arrangements
• customer and supplier contracts
• property leases
• intellectual property ownership
• licences and regulatory approvals
• shareholder arrangements
• insurance
• disputes or potential litigation.

Problems do not necessarily prevent a business being sold. Surprises discovered late in due diligence, however, can materially affect negotiating leverage.

6. Understand what your business may be worth

An independent valuation or valuation assessment well before a sale can be extremely useful. Not simply because owners want to know the number. The more important question is: What is driving the number?

Understanding the key value drivers can show an owner where they should spend the next 12 or 24 months.

For example, increasing EBITDA may be more valuable than increasing low-margin revenue. Reducing customer concentration may matter more than opening another location. Building management capability may materially change the universe of potential buyers.

Good exit planning is therefore closely connected to value creation.

7. Think about what you actually want from a transaction

A successful transaction is not always synonymous with achieving the highest headline price.

Before going to market, owners should consider what matters personally.

Do you want to:

• exit completely?
• remain involved for a transition period?
• retain some equity?
• bring in a growth partner?
• protect employees?
• preserve the brand?
• find a buyer capable of taking the company into its next phase?

Understanding those objectives helps determine not only how a transaction should be structured, but which buyers are genuinely suitable.

Preparation creates options

Selling a business should not start with putting the company on the market.

It should start with understanding what you own, what buyers are likely to value, where they may see risk and what can realistically be improved before a transaction.

The earlier this work begins, the more choices an owner generally has.

At G&G Advisory Partners, we work with Australian business owners both when they are ready to transact and earlier through our Exit Readiness process, helping identify the areas that can strengthen value, readiness and negotiating position before a sale begins.