The absolute best time to begin preparing for a smooth sale (pardon the pun) is RIGHT NOW. In the IT consulting space, we spend huge amounts of time helping our clients avoid disasters. Sadly, the cobbler's children are wearing no shoes! The most common problem we see with new client engagements is the lack of preparation, and the saddest problem that we see is a forced sale due to owner health issues. The following simple steps will not only increase the odds of an optimal transaction, they are also best practices for running your business.
1. Get your contracts in order. Ensure customer agreements are current and assignable. Assignability is critical for asset sales (about 70% of small and middle-market acquisitions) and optimal regardless of the type of sale. If your contracts are all one-offs or half of them have expired and the other half are missing, I hope your nails are ready for some abuse.
Take action: In the IT space, I can strongly recommend Monjur.com for service contract issues. We interviewed Rob Scott in Episode 8 of our "From Startup to Sale" podcast, in which Rob explains why it's critical to get your contracts right BEFORE you consider a company sale. You can find the full episode on Spotify or wherever you get your podcasts.
2. Clean up your books. Buyers—and their lenders—want visibility into how your company creates value. Your financials should show profitability by line of business. Implementing an industry standard chart of accounts, like the Service Leadership Index Normalized Solution Provider Chart of Accounts, makes it easier for your clean books to be analyzed, compared, and translated into an offer. Your books represent the financial strength of your company: when they are clean and clear, you command stronger offers and shorter diligence cycles.
One "gotcha" common to small business owners is burying personal expenses inside their books. Minimizing tax liability is a common strategy, and a good broker will add-back these expenses to the bottom line. However, it is far more professional looking to eliminate these expenses three years prior to selling, and it removes any contention around add-backs.
Take action: For a fee, we offer conversion to the Service Leadership Index Normalized Solution Provider Chart of Accounts. Or, you can download our COA Conversion Plan for free.
3. Build and maintain a due diligence folder. A ready-made data room eliminates bottlenecks. Include:
3 years of financials and tax returns
Customer and vendor contracts
Employee and contractor agreements
License, insurance, and IP documentation
Corporate records and governance documents
Any major software or service commitments
Lease(s)
If you expect a stock sale, loan documents
When you can provide these documents on day one, you not only accelerate the timeline but also project professionalism—exactly what serious buyers look for.
Take action: If you’d like my comprehensive due diligence list for more ideas, let me know - I’m glad to share it.
Treat “transaction readiness” as part of your annual business hygiene to ensure an optimal exit on your timeline.