Preparing Your Business for Sale: A Practical 18-Month Playbook
Value at closing is earned in the 18 months before launch, not in the final negotiation. The following playbook summarizes the preparation priorities that, over and over, separate successful transactions from disappointing ones.
Month 0 to 6: Foundation
Financial Clean-up
- Move to accrual accounting if not already in place.
- Engage a reputable regional or national accounting firm for an audit or review of the most recent completed fiscal year.
- Rebuild financial statements with departmental or segment detail buyers will expect.
- Establish a monthly close discipline — books closed within 15 days of month-end.
Customer and Revenue Analysis
- Produce a customer-level revenue and margin analysis for the trailing 36 months.
- Identify any customer representing more than 20% of revenue and begin diversification initiatives.
- Quantify and document recurring vs. non-recurring revenue.
- Inventory and renew key customer contracts where possible.
Legal and Corporate Housekeeping
- Organize the corporate records — cap table, stockholder consents, board minutes.
- Ensure all intellectual property is assigned to the company (not the founder personally).
- Review and update employment agreements and non-competes for key personnel.
- Confirm all licenses and permits are in good standing.
Month 6 to 12: Structural Strengthening
Build a Second Layer of Management
One of the most consistent value drivers is reducing buyer risk around owner dependence. In a 12-month window:
- Clarify the org chart with clear roles and decision rights.
- Promote or hire a COO, CFO, or GM who can operate without the owner present.
- Document standard operating procedures for critical processes.
- Reduce the owner's direct sales involvement if it is a concentration risk.
Quality of Earnings Preparation
- Begin assembling the Quality of Earnings (QoE) dataset even before engaging the QoE firm.
- Document every EBITDA adjustment with supporting evidence.
- Reconcile TTM EBITDA to the audited prior fiscal year.
- Prepare a defensible revenue recognition memo if your revenue model is subscription, multi-year, or project-based.
IT, Systems, and Cybersecurity
- Complete a cybersecurity posture assessment.
- Migrate off any unsupported or end-of-life software.
- Ensure data backups and disaster recovery procedures are documented.
- Inventory all third-party software contracts with renewal dates.
Month 12 to 18: Go-to-Market Readiness
Engage an M&A Advisor
A senior sell-side advisor brings:
- Final valuation range and expected buyer universe
- Process design — broad vs. targeted, auction vs. negotiated
- Positioning workshop — the investment thesis buyers will underwrite
- Marketing materials — CIM, teaser, management presentation
Sell-Side Quality of Earnings
- Engage a reputable accounting firm to produce a sell-side QoE, typically 6 to 8 weeks before launch.
- Scope covers 3 full fiscal years plus TTM.
- Delivered as a branded, bound report that accompanies the CIM under NDA.
Legal Diligence Preparation
- Build a virtual data room organized by buyer diligence category.
- Pre-populate key documents: contracts, employment agreements, insurance policies, tax returns, financial statements, corporate records.
- Run a mock legal diligence internally to identify issues early.
Owner Readiness
- Align the family, partners, and key executives around a sale decision.
- Engage personal wealth management and tax counsel to plan for post-transaction proceeds.
- Think through post-sale role — full exit, transition period, rollover equity.
- Prepare emotionally for the 6- to 9-month process to come.
Red Flags That Delay or Derail Transactions
The following issues surfaced during diligence are the most frequent cause of price reduction or deal termination:
- Unexplained EBITDA adjustments or inability to document them
- Customer concentration above 30% without a diversification trajectory
- Owner dependence on sales, operations, or customer relationships
- Pending or threatened litigation that was not disclosed
- Environmental liability on owned or leased properties
- Tax exposure — nexus, payroll tax, sales tax, or prior returns
- Employment issues — misclassification, wage and hour, discrimination
- IP ownership ambiguity — particularly for software companies
- Related-party transactions not at arm's length
Every one of these is meaningfully easier to address before a buyer finds it than after.
Measuring Readiness
A simple 1 to 5 self-assessment across the following dimensions tells an owner where the gaps are:
- Financial reporting quality and accrual discipline
- Management team depth below the owner
- Customer concentration and diversification
- Recurring revenue and contract coverage
- Documented processes and systems
- Legal and compliance posture
- Data room readiness
A 3.5 average or above generally indicates a business is within 6 months of launch. Below 3.0 suggests 12+ months of work before a process will produce optimal results.
Working With Sligo Strategies
We work with owners throughout this entire arc — not only during the transaction itself. If you are 6 to 24 months from a potential sale, a confidential consultation is the most cost-effective first step you can take.