Reviews
Part of Seller preparation in the year before a sale: what actually needs fixing first
Why does every seller preparation service want to run the numbers first?
Seller preparation services judged by what they earn if you sell, what they will put in writing, and who carries liability if the finding is wrong.
An owner who decides to prepare a business for sale is immediately offered help: exit planners, valuation providers, accountants selling a readiness review, intermediaries offering to prepare the business free, and software that produces a readiness score. Some of it is worth paying for.
The reason is the same in every case, and it is worth stating plainly: the number is what opens the engagement. A figure produced before the records are examined costs the provider an hour of work, gives the owner something concrete to react to, and anchors what they believe the business is worth. Advice does not win the work; a number does. So the number comes first and the checking comes later, after the owner is committed — and the shape of the service that follows is set by whatever the provider is actually paid for.
The way to tell is not to compare providers but to ask, of each one, three questions: what do they get if I go to market, what will they put in writing, and who is liable if they are wrong.
What to take away
- A preparation service whose income depends on you selling will find that you should sell. Judge it with that in mind.
- The output that matters is a written finding you could hand to a buyer's accountant. Anything else is a conversation.
- None of these services replaces the accountant and lawyer a sale of this size requires, and only one kind of them is the intermediary.
The four shapes and the pull each one carries
The intermediary offering preparation free. The preparation is a route to the listing agreement: the intermediary is paid a percentage of the sale price and earns nothing if the business stays off the market, which is why the numbers are run first and the advice usually points at going to market. The preparation may still be good, because an intermediary who has watched many buyers' accountants knows what they question. Read it as the opening of a negotiation about an engagement, and read the business brokers page before you sign it; ask whether they hold the Certified Business Intermediary (CBI) credential of the International Business Brokers Association, which speaks to training rather than to the incentive.
The valuation provider. A formal opinion of value, produced for a fee. Useful for deciding whether to sell at all, for a dispute between partners, or for a transfer to family where a defensible figure matters. Less useful as preparation, because a buyer will form their own view and will not pay for yours — this provider is paid for the figure, not for the sale, and has to run the numbers in order to invoice at all. The general shape of a business valuation is described on Wikipedia; what any given provider produces depends entirely on which earnings basis they use — EBITDA, seller's discretionary earnings (SDE), a revenue multiple, or a discounted cash flow (DCF) — and on the adjustments they accept, so ask for both before you commission one. Ask also whether the person who signs holds a valuation credential such as the Accredited in Business Valuation (ABV) of the AICPA or the Certified Valuation Analyst (CVA) of the NACVA.
The accountant's readiness review. Your own accountant, or one engaged for the purpose, examines the business as a buyer's accountant would. This is the service most often skipped and most often worth the money, because its output is a list of what will be found and what it will cost. It is also the one whose incentive mostly points the right way, since the accountant is paid for the review rather than for your decision to sell. The best version is done by someone who has sat on the buyer's side and knows what a diligence team asks for first, and you should ask what professional liability insurance stands behind the review, because that policy — not the engagement letter — is what answers the question of who is liable if the finding is wrong.
The exit planner or coach. Advice on timing, on personal readiness, on what to do afterwards, sometimes on the business. A planner is usually paid by the hour or by a retainer, so the numbers exercise is often the first paid piece of work rather than a free door-opener — ask which it is before you start. Valuable if the hardest question is whether you want to sell. Not a substitute for the accountant or lawyer, and worth checking whether the planner is paid by any intermediary, adviser or product they recommend.
Six questions before you engage one
| Ask them this | What the answer tells you |
|---|---|
| Is any part of your fee contingent on my going to market or completing a sale? | If yes, the advice has a direction built in |
| Will you put your findings in writing, in a form I could show a buyer's accountant? | Verbal advice cannot be tested and cannot be relied on |
| Do you carry professional liability for this work, and are you qualified to? | A finding that nobody is liable for is an opinion |
| Which earnings basis will you use, and will you list every adjustment? | The basis decides the number; see the valuation methods guide |
| Have you done this for a business of my size, and can I speak to that owner? | Completion is the only proof |
| What will you tell me if the business is not ready or should not be sold? | A service that cannot say no is not advising you |
The last row is the test that separates advice from sales. Ask it directly and listen to the shape of the answer.
Six questions before you engage
- Is any fee contingent on going to market or sale?
- Will findings be put in writing for a buyer?
- Do you carry professional liability and qualification?
- Which earnings basis and every adjustment?
- Have you done this for a business my size?
- What will you say if the business is not ready?
The free valuation
A free figure produced without examining the records is a marketing document built to secure an engagement. Owners see it most, and should treat it with the most care.
Free valuation or paid figure
Was the figure produced without examining the records?
Treat as marketing document, not buyer price
Pay for a figure on a stated basis with adjustments listed
The higher the figure, the better it works. It tells you what the person offering it thinks will win your business, not what a buyer will pay.
If you want a figure, pay for one, on a stated basis, with the adjustments listed. If you want to understand how sensitive a figure is to each input, only your own spreadsheet will show you: change the earnings basis, change the multiple, and watch the figure move. That is the only thing that exercise is good for.
The readiness score
Software that asks a set of questions and returns a score is a structured checklist. That is not nothing; a checklist is where the preparation year starts. It is also the cheapest thing in this list to produce: the score is generated in minutes from what you type and costs the vendor nothing, which is exactly why the score comes before the subscription and the paid engagement. But a score answers questions the owner typed in, has not seen the accounts, and cannot tell a documented process from one that exists only on the form.
Readiness score: use and limits
What the score does
- Input
- Owner-typed answers
- Output
- Structured checklist
- Use
- Find missed categories
- Risk
- High score feels prepared
What the score cannot do
- Input
- Has not seen accounts
- Output
- Cannot verify process
- Use
- Do not show a buyer
- Risk
- Not a prepared business
Use it to find the categories you have not thought about. Do not show it to a buyer, and do not mistake a high score for a prepared business.
Where the services stop
None of these services makes the record true. A readiness review finds what is wrong; the fixing is yours, over months, in the business. None of them replaces the lawyer's work on consents, licenses and contracts, which is where prepared deals still fail.
The paperwork around the price is where the professions divide, and none of the preparation services supplies it. The purchase price has to be allocated between the assets and the goodwill and reported to the IRS on Form 8594 by both sides, and the buyer's accountant and yours rarely agree on the split. That is lawyer and accountant work; a readiness score does not touch it.
And none of them stands behind the numbers when the buyer's due diligence tests them; only your own accountant does that. Buying and selling a whole business is a transaction that warrants an intermediary, an accountant and a lawyer. Preparation services sit around those three; they do not sit in place of them.
