Selling Your Business: Are You Truly Prepared?

Most business owners focus on getting their financials ready for sale. That is only half the battle. A strong balance sheet is not enough for modern, strategic buyers.

Over a trillion in private equity dry powder waits for investment, but high deal failure rates persist. Often, it is not the numbers, but the real-world challenges of transferring ownership that trip up sellers.

Preparing thoroughly—and having strong financials—can lead to higher valuations. But achieving that premium means tackling issues far beyond just clean books and good margins.

The Operational Reality Check

I often find owners surprised by how deeply buyers look into their businesses.

Strategic buyers are increasingly active in the lower middle and middle markets, and they're looking for businesses that can deliver predictable returns without relying heavily on the owner. 

Customer concentration: Having more "buyers" within that customer and having more people owning that relationship gives more comfort. Having contracts that are longer term help. Having high change costs can also help. It really comes down to the history and how long and how deep that history is.
 

Management team: To help pull the owner out of the day-to-day, it's helpful to have someone own sales, operations, and back office. The longer these people have been in place, the more confident buyers are that the business could continue to run after a transaction.

The goal is not to remove yourself entirely, but to show that your business has systems and relationships that go beyond your personal involvement. Can you take a month off without daily check-ins? Do customers always call you directly for major decisions? 

Answering these questions can reveal dependency patterns buyers will spot during their evaluation.

Market Conditions vs. Personal Readiness

I hear it all the time: "I'm just waiting for my 'best year ever' to sell.” 

What if that "best year ever" never comes, or waiting means missing out on prime buyer interest?

The current market (mid-2025) adds another layer of complexity to timing your sale. Interest rates are steady, but tariff uncertainties create planning challenges. Political uncertainty in 2024 led to a "wait-and-see" approach in 2025, with minimal projected growth in U.S. M&A volume.

Your timing should consider industry trends, buyer interest in your sector, your competitive standing, and your own readiness for the sale process. Some factors are within your control, others are not. The key is to make decisions based on what you can influence.

What Actually Matters to Purchasers

Buyers evaluate risk differently than owners. 

Where you see loyal customers, they see concentration risk. Where you see efficient operations, they might see issues with management depth. 

These perspectives reflect their evaluation of the business as an investment that must perform under different ownership. This is why Quality of Earnings (QoE) analyses have become essential on the financial side—you both need to be looking at similar EBITDA numbers. 

I recently had Emma Gergen from Carlson Private Capital Partners on our podcast, and she shared that smart sellers invest in sell-side QoE studies to achieve “information symmetry” with buyers and accelerate deal timelines.

At Redpath, our goal isn't to put the business on the spot; it's to understand it. I often find that sellers are surprised by the depth of our analysis. While they may expect an audit or review to be sufficient, our due diligence goes further, focusing on monthly trends and specific data requests. We proactively help clean up their data to prepare for this, which can be unexpected since many assume their numbers are already perfect.

The Due Diligence Gauntlet

Due diligence is where deals either solidify or fall apart. Buyers are looking to confirm valuation and test the business against their investment thesis. Common red flags include aggressive revenue recognition, undisclosed customer concentration, non-GAAP accounting methods, and contingent liabilities.

Working capital is also crucial, especially with "cash-free, debt-free" transaction structures. Buyers will meticulously examine seasonal variations and collection patterns. The businesses that navigate this process best are those that start organizing their materials long before engaging with buyers.

Making the Go/No-Go Call

Persistent valuation gaps continue to be bridged with creative deal structures like earnouts, seller financing, and equity rollovers. However, these require sellers to understand their implications.

• First, can you clearly articulate why a buyer should want your business beyond its current financial performance? 
• Second, are your expectations about valuation and deal structure realistic? 
• Third, are you ready for 6-12 months of intense focus on the sale process while simultaneously keeping your business performing well?

The journey from thinking about selling to being ready to sell typically involves 18-24 months of focused preparation. An early assessment provides a strong foundation for effective preparation, helping you prioritize improvements and set realistic timelines.