Preparing a client to sell, five years out

What the file should look like on day one

Before anything else, establish the baseline: three years of tax returns that reconcile to internal statements, a chart of accounts that has not been reorganized twice, monthly closes that actually close, and a clear separation between the business and the owner's personal spending. If a buyer cannot follow the money in an afternoon, the price gets discounted for uncertainty regardless of how good the business is.

Alongside the financials, the corporate record: current minutes and resolutions, a clean cap table, signed employment and confidentiality agreements, assignment of any intellectual property, a lease with assignable terms and a landlord who will consent, and vendor and customer agreements in writing rather than in the owner's memory.

Year five and year four — fix the earnings picture

This is the window where tax strategy and sale strategy have to be reconciled. Every dollar of understated earnings costs several dollars of sale price at a market multiple, so aggressive minimization in the years immediately before a sale is expensive. That does not mean abandoning good tax planning; it means deciding deliberately, with the owner, which years will carry the earnings the buyer is going to pay for, and documenting every discretionary expense that will later be presented as an add-back.

Year three — reduce owner dependence

Owner dependence is the largest single discount applied to small companies. If the owner holds the customer relationships, quotes every job, and is the only person who can price work, the buyer is not purchasing a business, they are purchasing a job with debt attached. Building a second layer of management, documenting processes, and moving key relationships to the company rather than the person can be worth more than a year of revenue growth.

Year two — de-risk what a buyer will test

Customer concentration, an expiring lease, equipment at the end of its life, a key employee with no retention agreement, licenses tied to the owner personally, or pending litigation. Each is a line item a buyer will price, and each takes longer to solve than anyone expects. Recurring or contracted revenue, if the model allows it, does more for the multiple than any other single change.

Year one — build the package

Interim financials current to the month, an accurate equipment list, add-back documentation assembled rather than asserted, and a sell-side review that finds the diligence problems before a buyer does. This is also the year to get the Broker Opinion of Value updated so the owner's expectation and the market are in the same place before offers arrive.

Why waiting is expensive

Owners who begin the conversation ninety days before they want to be finished are selling into their own deadline, and buyers can tell. Health events, partner disputes and burnout do not schedule themselves around a prepared file. The cost of starting late is not a delayed sale — it is a permanently lower price, a longer seller note, or a business that never trades at all.

The billable side of it

Books clean-up, add-back documentation, quality-of-earnings preparation, entity structuring, sell-side diligence, buy-sell review, and multi-year tax coordination. A client who wants out in five years is five years of engagements — and the advisor who scoped that work is the advisor who is still in the room when the letter of intent is negotiated.