Maintenance
Part of Seller preparation in the year before a sale: what actually needs fixing first
Seller Preparation Comparison: Five Choices
A seller preparation comparison covers five choices—timing, leadership, deal structure, buyer type, and exit plan—and what each changes in sale preparation.
A seller preparation comparison starts with five choices, not one path. Each choice has two sides. The side you pick shapes what preparation involves.
If you do not choose deliberately, you choose by default, usually late and in the buyer's favor. Each pair below explains when each side is better and how it affects the preparation year.
What to take away
- Decide the five choices before the preparation year, because each one changes what needs preparing.
- The default on every pair, if you do not choose, is the one that costs the seller more.
- Each choice has a professional who owns itthe accountant for structure, the lawyer for consents and contracts, the intermediary for the buyer and the process. A sale of this size warrants all three.
- "The intermediary" is several trades, not one. A business broker handles smaller deals and is licensed, where licensing exists, under state law; an M&A adviser or an investment bank runs larger processes; and anyone paid to find buyers or to split a commission can fall under federal broker-dealer registration.
Prepare then sell, or sell as it is
| Prepare first when | Sell as it is when |
|---|---|
| Earnings are real but the record does not show it | The market for the business is declining and waiting costs more than fixing |
| Owner dependence or concentration can be reduced in a year | The buyer is already known and is buying for reasons the record does not change |
| The books need a clean year | Your health, age or circumstances set the timetable |
What changes: the whole preparation year exists on the left. On the right, preparation shrinks to the record, the consents and honest disclosure, and the price reflects what the buyer has to fix.
How long each route runs is set by the fixes, not the calendar. A business with clean records and an owner who already delegates can be dressed and taken to market in a few months. One where the owner is the sales process, the leases are verbal and the add-backs are undocumented can spend a full accounting cycle just producing records a buyer will believe.
Prepare first vs sell as is
Prepare first
- Earnings record
- Real but not shown
- Owner dependence
- Reduce in a year
- Books
- Need a clean year
- Timetable
- You control it
Sell as it is
- Earnings record
- Market declining
- Owner dependence
- Buyer already known
- Books
- Buyer accepts history
- Timetable
- Health, age, circumstances
Owner-led preparation, or adviser-led
| Owner-led when | Adviser-led when |
|---|---|
| The fixes are operational: documenting processes, handing over decisions | The fixes are financial or legal: reconciliation, structure, consents |
| You have time and the business does not need all of it | Running the business needs your attention and the sale is a second job |
| The intermediary will not be engaged until the record is ready | You want the intermediary's view of what buyers will question before you start |
What changes: who does the work and who is liable for it. Owner-led preparation is cheaper and produces a business that is actually run differently. Adviser-led preparation produces a record that stands up. Most sales need both, in that order.
Owner-led vs adviser-led preparation
Owner-led
- Fixes
- Operational
- Your time
- You have it
- Intermediary
- Engaged after record
- Result
- Cheaper, business changed
Adviser-led
- Fixes
- Financial or legal
- Your time
- Sale is second job
- Intermediary
- Engaged before start
- Result
- Record that stands up
Asset sale, or share sale
| Prepare for an asset sale when | Prepare for a share sale when |
|---|---|
| The buyer wants the trade and not the history | Licenses, contracts or leases sit with the entity and cannot be reassigned |
| Liabilities in the entity would frighten a buyer | Tax modeling favors it for you and the buyer can be persuaded |
| Licenses can be reissued to a new owner in reasonable time | The buyer needs continuity of contracts, registrations or accreditations |
What changes: the consents list. In an asset sale every contract, lease and license has to move individually, so the lawyer's preparation is a long list of assignments. In a share sale the entity stays and its history comes with it, so the accountant's preparation is a full account of every liability in it.
Asset sale vs share sale preparation
Asset sale
- Buyer wants
- Trade, not history
- Liabilities
- Left in entity
- Licenses
- Reissued to new owner
- Consents
- Every contract moves
- Preparation
- Lawyer's assignments
Share sale
- Buyer wants
- Continuity of entity
- Liabilities
- Come with history
- Licenses
- Stay with entity
- Consents
- Entity stays
- Preparation
- Accountant's liabilities
The choice is set out on the deal structures page. The tax difference between the two can be large, which is why the accountant models it before anyone agrees a price. Your buyer's lender will have a view too, described in how acquisitions are financed.
What the accountant is modeling, by name. A stock sale can be turned into an asset sale for tax purposes by an election under section 338(h)(10) of the Internal Revenue Code, which gives a buyer the step-up of an asset purchase without every contract having to move; it is available where the target is an S corporation or a member of a consolidated group. An asset sale is reported by both sides on IRS Form 8594, the Asset Acquisition Statement required by section 1060, which allocates the price across inventory, equipment, intangibles and goodwill. Where the seller takes back a note, section 453 decides when that gain is taxed. The non-tax mechanics run on their own track: UCC lien searches and releases against the assets, notice to taxing authorities in the states that require it before a bulk sale, and escrow or holdback on part of the price until the consents are in.
Outside buyer, or insider
| Prepare for an outside buyer when | Prepare for an insider when |
|---|---|
| Price matters most and you want competition for it | Continuity for staff and customers matters more than the last increment |
| Nobody inside can fund a purchase or wants to | A manager, partner or family member can run it and can raise or be lent the money |
| Confidentiality can be held through a process | The insider already knows everything a confidentiality agreement would protect |
What changes: almost everything. An outside sale is a process run by an intermediary, with an anonymous package, qualified buyers and competitive tension. An inside sale is a negotiation with someone who cannot walk away easily and cannot usually pay in full.
Outside buyer vs insider preparation
Outside buyer
- Priority
- Price and competition
- Funding
- Qualified buyers
- Confidentiality
- Held through process
- Process
- Intermediary-run
- Risk
- No competition
Insider
- Priority
- Continuity
- Funding
- Manager, partner, family
- Confidentiality
- Already known
- Process
- Negotiation
- Risk
- Cannot pay in full
So the preparation is about financing the buyer and protecting the seller: a valuation both sides accept, seller financing with real security, and a lawyer for each side. The saving on the intermediary's fee is real. So is the loss of competition, and only the seller can judge which is larger.
Name the routes the buyer can actually use. An SBA 7(a) loan, made by a bank and guaranteed by the Small Business Administration, carries its own rules on how much equity the buyer must put in and how any seller note has to sit behind the loan. A conventional bank facility is priced off the assets and the cash flow the lender can see. A seller note carries whatever is left, which is why the seller's own preparation is also the buyer's financing plan. Each route reads a different part of the record, so the same business can support a different price depending on which one is open to the buyer.
Clean exit, or staged exit
| Prepare for a clean exit when | Prepare for a staged exit when |
|---|---|
| The business demonstrably runs without you | Earnings depend on relationships that need handing over in person |
| You want certainty and will accept a lower headline for it | A higher total is worth more to you than certainty at closing |
| You have no wish to work under a new owner | You are willing to stay, on terms, for a defined period |
What changes: the record needs to show different things. A clean exit needs a business that is already run by others, visibly, for long enough that the buyer believes it.
Clean exit vs staged exit
Clean exit
- Business runs without you
- Demonstrably
- Priority
- Certainty
- Your role after
- None
- Price
- Lower headline
- Preparation
- Show others run it
Staged exit
- Business runs without you
- Relationships handed over
- Priority
- Higher total
- Your role after
- Stay on terms
- Price
- Part deferred
- Preparation
- Agree earn-out terms
A staged exit defers part of the price, often through an earn-out tied to results after the sale. Preparation then turns to terms: the target, what you control in that period, and what protects the deferred amount.
Anything measurable after closing will be argued about at closing. Agree the measurements before.
The price on the table is judged as a multiple of the earnings the buyer will own — SDE while the owner still runs everything, EBITDA once managers do. Anything that raises that earnings base, or lowers the buyer's risk in relying on it, moves the price further than the last round of negotiation.
The pattern across the five
Read the right-hand columns together: a seller with less time, less choice, and more dependence on one buyer. Read the left-hand columns together: a seller who started early.
The larger world of mergers and acquisitions makes the same choices at a different scale, with the same result: the party who prepared sets more of the terms.
