Keep the Buyer at the Table: How to Prepare Your Business for Sale

Editor’s Note: Selling a business is not a single decision. It is a sequence of them, and the early ones shape everything that follows. This article walks through what that sequence actually looks like for lower-middle-market companies, from figuring out why you are selling and what kind of exit makes sense, to understanding what the business is worth and why a buyer would agree, to doing your own due diligence before someone else does it for you. It also covers the parts of the process that tend to get less attention until they cause problems: owner alignment, deal structure beyond the headline number, and the need to keep the business performing while the transaction is still in motion. The common thread is preparation (not the glossy, investment-banker-pitch kind, though that’s also important), but rather the kind where you ask yourself hard questions early enough that the answers are yours to shape.

Start With Why You Are Selling

Business owners decide to sell for very different reasons. Retirement may be planned years in advance. A health problem, a partnership dispute, a lender deadline, or an unsolicited offer can move the timetable forward almost overnight. The reason matters because time changes the seller’s options. An owner with two or three years to prepare can address problems before buyers see them. An owner under pressure may have to solve those same problems while the transaction is already moving.

As Bob Dekker of The Peakstone Group put it, “motivation is a key consideration in M&A deals.” A retiring owner may be able to spend two or three years organizing records, addressing contingent liabilities, and thinking through tax and estate issues. A distressed seller may not have that luxury. Neil Gupta of SSG Capital Advisors described the objective in that tighter setting as trying to “maximize value, but over a shorter period of time.”

When financial distress drives a transaction, the seller may also have to account for creditor claims, lender deadlines, and a narrower set of transaction structures. The company may still be saleable, but the margin for delay is smaller.

Decide What an Exit Actually Means

Selling to an outside buyer is only one way to exit a company. The materials also discuss employee stock ownership plans, management buyouts, family transfers, and transactions in which the owner sells control but keeps a minority investment. The right path depends on what the owner wants life, control, and ownership to look like after the transaction, not simply on the highest number offered at closing.

Allan Grafman of All Media Ventures discussed ESOPs as a means to shift ownership toward employees over time. A management buyout places the acquisition effort in the hands of the existing management team. Family succession creates another set of questions: Does the older generation need liquidity for retirement? Will ownership be sold, gifted, or transferred in stages? Who will vote on the shares? Who will actually run the company?

Those questions should be answered before the structure hardens. Once financing, tax planning, and control rights have been structured around a proposed exit, a family or ownership dispute can become much harder to resolve.

Know What the Business Is Worth, and Why

Every seller wants to know the number. The harder question is why a buyer would pay it. In lower middle-market transactions, EBITDA is often part of the discussion. Rather than treating it as cash flow, it is better understood as an earnings measure that excludes interest, taxes, depreciation, and amortization. Buyers may apply a multiple to that figure, but they must still consider what the business will require after closing.

For example, EBITDA does not by itself show working-capital demands, capital spending, debt payments, or cash taxes. A company can therefore report healthy EBITDA while still needing meaningful cash to keep operating.

Value also changes with industry, growth outlook, customer concentration, margins, competitive barriers, and the risks associated with future earnings. Grafman summarized the point this way: “The market is the most important determinant, and timing is often a critical factor beyond anyone’s control.” Depending on the company and the reason for the analysis, business valuation may also draw on income, market, or asset-based methods.

Do Your Own Diligence Before the Buyer Does

A seller should examine the company with the same skepticism that a serious buyer brings to due diligence. That review can include financial statements, minute books, and ownership records, tax filings, benefit plans, guarantees, loan restrictions, litigation, environmental matters, and deferred maintenance. The goal is not to make the company look perfect. It is to make sure the seller is not learning about its own problems from the buyer.

Jonathan Friedland of Much Shelist, P.C., reinforced that point: “A seller who has done rigorous self-diligence controls the narrative. When you hand a buyer a clean, organized data room on day one, you are telling them that this is a company run by people who pay attention to detail, and that changes the entire tone of the negotiation.”

Andy Chidester of Metolius Partners Inc. put the practical goal plainly: “The less noise and less uncertainty you have in your business… the smoother a sale process is gonna be.” That is especially relevant for environmental matters or legacy liabilities that have never disrupted ordinary operations but can become material once a buyer starts tracing risk after closing.

A seller-side balance-sheet cleanup can expose liabilities and accounting issues early. A quality-of-earnings review can play a similar role on the income statement by testing whether reported earnings are repeatable and whether proposed adjustments, including excess owner compensation or personal expenses paid by the company, are supported.

Dekker called the quality-of-earnings exercise “sort of a self-examination.” That is the practical value of the exercise. The seller gets to test its earnings story before a buyer starts challenging it.

Fix What You Can Before It Becomes a Negotiating Point

Unresolved capital needs, lawsuits, and compliance problems do not become less expensive simply because a sale is underway. A buyer may add the expected cost of those items to its own investment budget and adjust what it is willing to pay. A buyer may also read several unresolved issues as a sign that other parts of the business deserve a closer look.

Friedland cautioned that the risk is cumulative: “One open issue is a conversation. Three or four open issues become a pattern, and patterns make buyers nervous. Each unresolved problem does not just reduce the price by its own cost; it gives the buyer permission to question everything else they have not yet looked at.”

Litigation is a good example. If the company expects a recovery as the plaintiff, the deal documents should say who keeps it. If the company is defending a claim, the parties should decide who bears the fees, settlement amount, or judgment. Grafman’s advice was direct: “Try not to go into a sale process with pending litigation.” If the case cannot be resolved first, the purchase agreement may need disclosure schedules, escrow, indemnity, or another tailored allocation of that risk.

Representations and warranties are part of that allocation. They tell the buyer what the seller is standing behind as true, while related indemnification provisions can determine what happens if a covered statement proves inaccurate. A known issue can be priced and documented. An issue revealed late in the process can change the negotiation entirely.

Make Sure the Owners Are Ready Too

A company may have clean financials and still be unready for sale if the people who own it are not aligned. In a closely held or family business, a minority owner, former spouse, sibling, trust, or estate may hold consent or voting rights that become important only when a transaction is proposed.

Chidester warned sellers to make sure “all your owners in the company are on the same page.” Counsel should confirm the legal side of that alignment by reviewing ownership records, approval requirements, shareholder or operating agreements, and loan or contract provisions that may restrict a transfer.

Look Past the Headline Number

A headline purchase price can be misleading. The more useful question is how much the seller receives at closing and how much remains subject to future performance, credit risk, or post-closing claims. The consideration can combine cash, a seller note, an earnout, buyer stock, or rollover equity. Each component carries a different mix of timing, credit risk, and control.

A seller’s note leaves part of the price payable over time. An earnout ties additional payment to future results. Rollover equity leaves the seller invested after the control has changed hands. Those structures can be useful, but none should be valued in the seller’s mind as though it were cash already in the bank.

Earnouts deserve particular care because the parties have to define the measurement period, the performance metric, and how post-closing decisions affect the calculation. Instead of relying on the familiar “bridge the gap” formulation, Friedland made another useful point about preparation: “Sometimes issues come up because sellers don’t think about them until buyers ask.” That observation applies just as well to earnout mechanics as it does to diligence.

The same discipline should be included in the letter of intent. Price, exclusivity, the assets and liabilities included in the deal, remaining due diligence, timing, and contingencies should be addressed carefully. The seller may have its strongest negotiating leverage before granting exclusivity, so important economic points should not be deferred without a reason.

Prepare the Business, Then Keep Running It

A signed LOI is still only a step toward closing. While diligence and document negotiations continue, the business must keep serving customers, maintaining operations, and producing the results on which the valuation is based. Allowing performance to slip can create a new problem, even if all prior issues have already been resolved.

Good sale preparation is less about polishing a presentation and more about knowing the business well enough to stay in control of the process. The owner should understand the reason for the exit, the basis for value, the weaknesses a buyer is likely to investigate, the approvals required to sell, and the real economics of the consideration. Then the company must still perform until the transaction is complete.

The buyer will conduct its own diligence. A prepared seller has already asked many of the same questions and, more importantly, already knows the answers.

To learn more about this topic, view How to Prepare for Sale. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with Financial Poise Faculty. Read more about preparing for sale on Financial Poise.

This article was originally published on [September 21, 2026].

©2026. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.