Being prepared matters. Preparing your business for sale maximizes valuation and streamlines the process by operating at maximum appeal. The businesses that transact quickly and at premium multiples are those that present like institutional-quality assets regardless of size. That means they have organized financials, documented processes, diversified customer bases, a clean legal structure and an owner who has a post-closing plan. Buyers evaluate sellers on far more than their business performance. but on operational and emotional maturity:
Do you have an asset that will transfer cleanly?
Do you have an asset that lacks predictability? or,
Do you have an arrogant, self-serving disposition?
Up to 90% of private M&A deals fall short of seller’s expectations. What happens is the seller often rushes to prepare while also being underprepared. The best-performing sellers get ahead by creating long-term, strategic approaches that build value, reduce risk and drive outcomes. Over 9,000 cases were transacted in 2025 for over $1.2T in lower-middle market. If you think your business is guaranteed to sell, then there’s a rude awakening ahead since less than 30% businesses transacted last year.* That’s over 21,000 businesses were in market that didn’t sell.
Why Prepare?
Pre-market preparation does three things: it shortens the diligence timeline, reducing deal fatigue and buyer attrition. Preparation allows sellers to normalize EBITDA accurately before buyers apply their own methodology, and it surfaces problems while the seller still has time to fix them. Examples of uncovered problems needing resolution include, a customer contract missing a renewal clause, an unassigned piece of intellectual property, or a vendor agreement with a change-of-control termination right. Any of these alone can kill or delay a transaction if discovered in buyer diligence.
Why Owners Don’t Prepare?
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Arrogance and Ignorance
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Declining or Stagnant Revenue
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You’re Just Plain Tired
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Unorganized Financial & Operational Documentation
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Unrealistic Expectations
Arrogance & Ignorance. It begins quietly. A business owner achieves a little success, gains a little influence and finds themselves praised for their knowledge. Slowly and almost invisibly, a shift begins taking place where curiosity is replaced by confidence. Confidence reinforces conviction and soon questions feel unnecessary. What follows is the most dangerous state of all: the fusion of arrogance and ignorance. The pairing is far more destructive than either trait on its own. Arrogance convinces us we know enough and ignorance confirms we don’t.
Egos are celebrated, a toxic culture begins to boil, mediocrity is tolerated, and eventually organizations collapse. If you look around it’s everywhere. Leaders confuse stubbornness with strength, arrogance becomes a badge of confidence, and ignorance, its natural consequence. It’s not a modern problem, but generational eras magnify it. Our culture increasingly values speed over depth and performance over substance. Arrogance flourishes because humility looks weak, and ignorance spreads because noise drowns out thought.
Declining or Stagnant Revenue. Buyers want a business with consistent revenue, margin expansion, cash flow growth and ideally all metrics on the upward shoulder of a bell curve. After COVID spiked many business owner’s revenues and profitability for several years, but the dust has settled with these same owners experiencing a recalibration or stagnation of many financial components over the last three years.
Deloitte conducts a private company outlook on market readiness yearly polling private company leaders contemplating a sale or transfer regarding their upcoming plans, priorities, and pain points. Only half of those companies planning a sale in the next three years report being prepared for the due diligence process by a potential buyer. With revenues struggling due to local, national or geopolitical issues and concerns, some of these owners are rethinking the timing of a sale. For the ones who pressed on into a process, many respondents expressed the desire to not enter any earnout situation either.
Owner Burnout. Who can blame them? After decades of blood, sweat, tears, sacrifice and significant multiple market disruptions, there’s a portion of business owners who are just tired. Founder burnout leads business owners too exhausted to sell their companies, as they experience chronic fatigue and emotional exhaustion from years of prolonged stress. In such cases, selling might provide relief from relentless responsibilities, however it’s important to recognize the signs of burnout and consider the implications of selling before deciding.
Burnout owners of SMBs typically forfeit $2MM-$3MM in value* compared to a sale, making closure one of the most expensive exits without exploring alternatives. Most burned-out owners accept panic-sale discounts of up to 60% to ‘just get it over with.’ The difference is whether burnout is recoverable as merely operational stress or are there fundamental business model issues, which determines whether selling the whole business, recapitalize with new capital, or transition gradually makes sense.
Unorganized Documentation. Operating out of a cigar box is no way to run a business. Yet, we’ve seen $25MM businesses operate just that way. One of the most common reasons business owners say, ‘fuck it’ is they know what’s missing and disorganized. Sellers who cannot produce the financial, legal, commercial and operational documentation cause buyers to question the reliability of the entire operation.
Buyers want predictability! When the buyer doubts the integrity of the seller’s data, trust erodes and the deal is exposed to renegotiation or ending full stop. Few things derail a deal faster than discovering liabilities that were not disclosed during LOI. From unpaid taxes, payroll compliance issues, pending litigation, outstanding debts, warranty exposures to environmental violations, buyers either walk away or significantly reduce the valuation, often creating tensions the negotiations cannot survive.
Unrealistic Expectations. Many business owners often have unrealistic valuation expectations. There’s often a gap between what a seller wants to sell their life’s work for and what a buyer is willing to pay for that business. One of the main causes of a valuation gap is the owner disagrees or refuses to believe a gap exists. Why? Because it’s their baby, their life’s work… so much blood, sweat equity and sacrifice have gone into 20-, 30-plus years. They have ignored the fact that the life’s work a buyer wants evolves into a cash-producing asset. But if you’re not going to do anything to impact and improve your cash position, you’re done.
Unmet expectations often lead to resentment and disappointing results regarding the business’ value. This lack of knowledge and confusion regarding a sale process is disheartening. The disconnect leads to stalled negotiations or failed deals, as sellers may not align their expectations with market realities. As such, too many business owners fail to make any effort or invest any resources in bridging the gap even though it’s costing them millions!
#1 Regret Business Owners have Post-Closing?
98% “I wish I was more prepared.”
92% “I could have done more, but I didn’t.”
97% “[They were right] I left hundreds of thousands of dollars on the table.”
Source: internal survey of closed business cases, 2022-2024
Top Reasons to Be Prepared
1. Align Personal and Business Goals
What do you want when you hang up your cleats after the final game? Is it generational wealth, recapture some of your time, what? We strongly suggest inviting your wealth advisor or at least a CFP to discuss how a sale process and transition meets your financial goals and objectives. Get a partner by hiring your business case advisor now, and at the very least have your business assessed as to ‘where you are now’ to understand where you need to go. to meet those financial objectives. Marry up the wealth advisor’s discussion with the businesses assessment to clarify next steps. No one understands current market conditions better than your advisors. Having a dialog with them regarding your unique circumstance will help you choose the optimal time to sell and potentially increase your business’s value.
The sooner you make a decision and begin preparing, the better chance your life’s work can cross the finish line. It’s likely your advisor includes pre-market preparation into their fee, and the longer you wait, you might as well burn hundred-thousand-dollar bills each month. There’s a strategic process in pre-market preparation allowing you to align your personal goals with the business’ future. Start today!
2. Expert Guidance Mitigates Risk
You already have a full-time job and engaging in a transaction process is another full-time job. To help navigate the complex demands, owners are best served by drafting a deal team of trusted advisors to ensure success, maximize value, and manage risk. You may not need to hire them today. However, interviewing who would make a solid contribution to your case and logical sense to be a part of your deal team does. Engage everyone on the Deal Team in one meeting – M&A advisor, M&A attorney, Tax attorney, Wealth Advisor and CPA – before starting a process to state your expectations and objectives. A knowledgeable team will navigate the complexities and reduce the risk of issues arising during the sale while you concentrate on leading and operating your business.
One of the biggest threats to a successful outcome is if the business does not perform well during the transaction process; having a balanced deal team will ensure the owner remains focused on the business’ operations, growth, and people. Every business has unique needs, but the core group of professionals in the detailed list below are illustrative of a typical transaction team.
The M&A advisor serves as the Master of Ceremonies, they’re the gateway to the market and act as the lead professional, during the process coordinating all activities of the collective team. The advisory team will be in the trenches with the business owner from start to close preparing the company and management, marketing the business to the right buyers, negotiating purchase price and terms, and managing the due diligence and deal closing process.
Hiring a lawyer who specializes in M&A is particularly important. Many lawyers claim to be able to represent a client in a transaction but paying the fee premium to hire a firm with a dedicated M&A practice will yield a strong return on investment. While the advisory team is primarily focused on capturing maximum value, the M&A attorney will be focused on protecting the sellers interests by mitigating transaction risk.
Once the purchase & sale document has been delivered, legal will assume the front-facing role, guiding the business owner in managing disclosure requirements, legal and tax structures, representations and warranties, and a host of other complexities that will inevitably arise during the final closing processes. At JSP, we work together with M&A attorney hand-in-hand.
It’s our hope, by the time a business owner hires JSP and legal advisor, chances are advanced wealth management strategies are already in place. However, because a large amount of a business owner’s wealth can be tied up in their business, if these strategies are not in place prior to a transaction, Doug or Scott and the deal attorney will make the appropriate introductions. This capability and planning discipline can have a dramatic impact on the net outcome, largely driven by sophisticated estate, legal and tax structures that can be pursued.
In a traditional case, the fourth member of the Deal Team, depending upon the transaction – is the CPA or accounting team. Like the wealth manager, accounting advisory has likely been in place for a while prior to the transaction. However, deals will generate the need for new capabilities the CPA firm may or may not have. Ultimately, business owners will need an accounting firm that can be engaged during the entire process: from ensuring historical financials are in order, to mobilizing for preliminary due diligence, to delivering a QofE report, to defending arguments and supporting negotiations, to ensuring accurate disclosures throughout.
Beyond the external deal team required to optimize transaction results, business owners need to consider how to construct, and communicate to, their internal deal team. Careful thought must go into: Who do I include? When do I include them? What distractions will it cause? How do I maintain confidentiality? Do I need to provide incentives? And so forth.
There are two absolutes business owners need to be aware of:
- you cannot do it alone as certain members of your management team may need to be involved to handle the workflow and prepare your business for sale, and
- demonstrating a professional well-prepared management team will increase the value of the business.
By having the right external deal team in place, we help business owners ask the right questions and plan the course of action with respect to the internal deal team.
“Remove the word ‘should’ from your vocabulary. At your age, you either know or you don’t. Should is a word for the unaware and unqualified of which you are neither.” – Grandpa Franklin
3. Maximize Valuation
Being prepared to sell your business will maximize its value, streamline the sale process, and attract the right buyers. Conducting a thorough financial and operational review uncovers what current strengths and weaknesses exist to improve overall performance. Taking advantage of value drivers in play and what opportunities exist to maximize valuation. Review your operational performance – KPIs, processes, and controls and correcting potential red flags supports a favorable business valuation. By addressing any potential red flags up front reduces risk potential buyers may have.
Improve buyer’s confidence in your opportunity with organized corporate documentation and contracts throughout the organization. Have a plan of identifying and capitalizing on future growth opportunities and existing market penetration. Being well-prepared to sell your business is crucial for maximizing its value and ensuring a smooth process.
Owners believe they have a number their company is worth without a full understanding of how the business will be viewed and valued by prospective buyers. Far too often, they’ve presumed what this number is from peers who have zero clue what the specific business may bring. Conjecture and comparison is no way to value a businesses worth. When key value drivers are recognized and implemented, there are specific steps business owners can take prior to entering a transaction process. Discussions with would-be suitors will then make the company more attractive and have a demonstrable positive impact on the value of the business.
Key Operational Value Drivers
Buyers treat ARR, recurring revenue streams, as sacred as the Treasure of Sparta. In the subscription economy of today, ARR provides a clear, stable view of the future potential of any company. If recurring revenues are NOT part of the business model, then some other multi-year or fixed contract revenue is the next best thing. Business owners who highlight the value of this revenue model experience low customer loss ratios, high switching costs, and long customer tenure metrics. All revenue is not created equal and business owners must be prepared to articulate their chosen business model, why it works for them, how they see revenue expanding and what unique characteristics differentiate them over like businesses.
Customer concentration can be the single greatest threat to achieving a premium valuation or it can eliminate the transaction altogether. Some dealmakers estimate a high customer concentration will reduce value by as much as 50% or more. It’s difficult for a business owner to avoid pursuing a large customer, or continue to grow within that customer, but effort must be invested in building diversified revenue sources. Can you afford to lose 25% of your revenue overnight; then don’t expect your buyer to. Any customer representing more than 20-25% of the owner’s business will cause issues for an M&A process. One of the first steps in preparing to sell is having a diverse customer base with incremental additions in the funnel.
Not all companies have a low fixed cost structure. It is, however, most important to drive highly attractive and growing margins. Some companies achieve efficiency through automation initiatives or through operating capabilities that are highly scalable to drive margin growth. Other business owners remain mindful that it’s easier to carry underproducing assets or people.
Timing a transaction is one of the most critical factors from a valuation standpoint. Owners must be up to date on factors influencing and impacting their industry relative to valuations for comparable companies that have recently transacted and the ever-evolving industry dynamics. It is never too early to give Doug or Scott a call to learn about current market trends from sector experts.
Most transactions involve some consideration of leadership transition. If the business owner lacks a specific plan in place, or one that’s already in motion, then red flags are raised by prospective buyers. A business that’s reliant on the founder/owner to maintain and grow value post-closing is a highly probable deal killer unless it’s in a rollover equity role. You’re not indispensable; you’re replaceable. Mentoring a strong executive or leadership team with one or more potential successors is highly desired. Having a pipeline of emerging leaders as tier two is also important for a premium exit. Acquirers love continuity and predictability and are allergic to disruptions.
This ain’t no hobby and working capital can be a ball buster in a business case. Negotiating the peg and the methodology is always a pain in the ass. Oftentimes, it’s left for last because it has a real economic impact. Business owners generally don’t understand it and usually tune out during these negotiations. We expect to bring up adjustment methodology very early against significant push back from buyer. Buyers like capital-efficient businesses, which means cash conversion cycles and low capital expenditures matter. It’s important for our owners to maintain current and advanced status by managing their company efficiently to send an obvious message of strength. We will leverage the buyer from a point of power, because you have the most attractive and prepared business in play. Remember, you’re selecting them, not the other way around, and our posture is to put pencils down when we have leverage. Review Working Capital scenarios here
It’s not rocket surgery that excites the buyers’ growth orientation. From growing revenues, profitability, margins, customers, end markets, etc. Revenue and EBITDA growth have a direct impact on valuation multiples, and business owners are fundamentally selling futures. Buyers investigate the businesses’ history relative to the operation’s cadence, and they look forward to the growth they can implement under their governance. Premium exits require a formal, well thought out growth strategy identifying opportunities, the timing, the anticipated economic impact, the required investment of capital and resources, the related risk management plans along with contingencies and mitigating strategies ready to deploy.
Each business is unique and benefits from a personalized value development strategy. Procrastinating isn’t effective and avoiding or postponing decisions that needed to be made last year solely to improve a short-term operating metrics this year will be smoked out completely. A sophisticated buyer will focus on the moves made immediately prior to a transaction to uncover their best interests or some knee-jerk reaction of hope. The underpinning tactics must be from an intentional and sustainable business.
Get Your House in Order
First impressions matter in private M&A business cases. Strategic and financial buyers pay close attention to who you say you are. Failure to clean your corporate house before going to market is a common mistake too many owners make. Well organized disciplined companies represent a strong business, which implies a capable management team who deliver higher valuations. Business owners must verify their corporate formation and associated documentation is assembled, organized, thorough and accurate in one easily accessible location before diligence. Early preparation not only enhances the first impression factor but also enables the company to promptly respond to optimal market conditions moving to execute attractive transactions with speed and surety.
Before engaging in a sale process, business owners are charged with embracing a fresh perspective. The mindset shifts from ‘operator’ to ‘seller’ from a buyers perspective. Being laser focused into every aspect of the business preparing for market, business owners ensure all details in every workstream are in order. This focus includes validating customer contracts are in writing, properly assignable, and free of any change of control termination rights that present problems. Examining each vendor agreement to verify pricing terms, conditions, inclusions and exclusions are commercially sustainable. When was the last update of the cap table, the governing documents? Do debt structures contain restrictive covenants? What else hasn’t been touched, updated in years or decades?
A deep dive and more is critical. Buyers don’t like surprises in diligence, and neither will you when potential buyers begin making deductions from the original offer sheet. Having to “clean-up” YOUR business in front of a buyer costs YOU credibility as well as deal value.
Typically, three to five years of historical financial statements are required, and some will want to run out to seven years. Unfortunately many owners are also tripped up when asked for the current year’s budget. Looking at your TTM, trailing 12 months, relative to current year’s actuals, trends and forecasts are, in some cases, more important than looking backwards.
The financial trinity of the Income Statement, Balance Sheet, and Cash Flows will be scrutinized very carefully. In many cases, our clients will complete a Quality of Earnings (QoE) review prior to going to market. If a company does not have internal systems to provide consistent and organized financials, then we’re addressing this immediately. The inability to produce baseline financial information as expected reflects negatively on management, valuation, and likelihood of closing a transaction. As many as 50% of businesses that go to market do not sell and the financial picture represents the majority of those.
Prospective buyers will review the company’s legal and tax structure as well as significant business contracts beyond the Articles of Incorporation. Leases and other major contracts or related financial commitments will be inspected. Any relevant contracts a company may have with a supplier, distributor, or customer will provide validation of the company’s current “good standing” relationships and any change of control rights will be flagged. When applicable, intellectual property verifies that a company owns or has the right to anything that may be essential for its operations. When we take on a client, expect pre-sale preparation including everything we’ve discussed today to be performed.
Providing insights into business processes, technology, performance metrics and key employees are required in prep. Too often, businesses are extremely dependent on the knowledge locked inside the owner’s head, which adds risk to potential acquirers. Process documentation and specific protocols elevate confidence the company will continue to run smoothly after a transaction and owner transition. Prospective acquirers look to management systems and reporting packages to understand how the business is operated and measured. Finally, buyers will want to understand internal talent, organization structure and hierarchy and succession planning to gain insights of how business gets done here, how the team functions, identify key personnel and potential holes they may have to fill.
We primarily engage in industries and market segments where acquirers already understand the landscape and competitive dynamics. These buyers understand core value propositions and competitive differentiation. When we engage prospective strategic acquirers and private equity firms venturing into new products, services or end-markets will value industry analyses provided by the owner and their management.
The typical body of work includes industry research reports, SWOT analysis, capability comps vs major industry competitors, emerging growth opportunities, and information to assess the size of the market and the commercial opportunity. Buyers perform much of this work on their own, and they prefer to see management and owners who study and own knowledge of their markets and competitors and compare it relative to their perspectives.
Gathering this information can seem daunting at the onset. The key is to begin with a comprehensive due diligence list and start chipping away. Prep is a multi-million-dollar process! READ THAT AGAIN. When owners embrace pre-sale prep of a potential process, they immediately understand how wildly helpful and efficient it is for all parties involved. We capture all prep into our bank-grade secure VDR, virtual data room, to aggregate and consolidate the vast reams of information owners have accumulated over the decades.
The Law of Prep is: “if the information exists, put it in the data room.” Such information could include a host of other topics such as board minutes, records of prior capital raises, research and development plans, asset roster, prior and pending litigation matters, borrowing records, ownership structure and more.
That was a lot of information to digest, wasn’t it? This post was a precis of what you can expect as we could have gone deeper. Less than 3% of you will have read this far.
What we didn’t include was a statistic from our internal survey of every transaction that closed over the two-year period 2022 – 2024. It’s likely you wouldn’t have believed it if you had not read the entire article. Here it is:
100% of owners surveyed admitted, “this was more work than I could have ever believed.”
Here’s the thing we offer every business owner. We will gladly help you throughout the process by taking the lead in aggregating all of your information if you’re willing to just let go. It’s difficult. We know as we have sold a demolition business, a steel stamping business, an executive search firm and a kitchen cabinet manufacturing business.
Sources: Exit Planning Institute, IMAA, M&A Magazine, M&A Source, themiddlemarket.com; various 2026
