Guides
Part of Seller preparation in the year before a sale: what actually needs fixing first
Seller preparation mistakes often look like sound decisions at the time
Nine seller preparation mistakes that feel like good decisions, including the price set too early and the refusal of any deferred consideration, with corrections.
The obvious preparation mistakes are personal spending through the books, hiding a concentrated customer, and flattering the numbers in the last year. Most owners know them; they are covered on the seller preparation page.
The nine below feel like good decisions at the time. Each explains why it feels right and what it costs. Three go further because they decide deals.
What to take away
- The mistakes that hurt most are the ones with a reasonable motive. Thrift, loyalty, confidence and privacy all appear below.
- Most of them are corrected by one early conversation with the right professional. A sale of this size warrants an intermediary, an accountant and a lawyer, and the ninth mistake is going without one of them.
- Nothing here is about the number. It is about what happens to the number once a buyer starts testing it.
The nine
| The mistake | Why it feels right | What it costs |
|---|---|---|
| Fixing a price before preparing | You want to know if it is worth doing | The price anchors you to a figure the record cannot yet support |
| Preparing for one kind of buyer | You have someone in mind | The record is shaped for a competitor, or an individual, and the other kind walks |
| Keeping your own accountant out of it | Discretion; fees | They learn of the sale from the buyer's questions and answer them cold |
| Signing a non-compete without a plan | It seems standard | Years of restriction on the one trade you know, agreed without thought |
| Stopping investment in the last year | Every unit spent feels lost | Deferred spending is found, priced, and taken as a sign of more |
| Treating the package as marketing | The intermediary calls it that | Claims that outrun the record become adjustments the buyer refuses |
| Not deciding what stays | It can be sorted later | Property, vehicles, the name and cash are argued over at the worst moment |
| Ignoring working capital | It is not on the listing | The buyer sets a target from history and adjusts the price at closing |
| Refusing all deferred consideration | Cash is certain | Every offer arrives lower, because the buyer's risk has nowhere else to go |
The price set too early
An owner asks an intermediary what the business is worth, receives a number, and prepares toward it. The number was produced to win the engagement, before anyone examined the record. Everything afterwards is measured against it, and preparation becomes an exercise in justifying a figure rather than in finding out what is true.
Correct order for pricing
- Accountant states earnings basis
- List the adjustments
- Ask what buyers pay
- Compare to the early figure
The order should be reversed. Have your accountant produce the earnings on a stated basis, with the adjustments listed. Then ask what buyers pay for earnings of that kind.
The valuation methods guide explains why the basis matters more than the number. An intermediary who offers a figure before seeing the accounts is describing their marketing, not your business; the business brokers page explains that incentive.
The non-compete signed without a plan
Buyers will require the seller not to compete after the sale. That is reasonable, and a sale without one would price the risk instead. What is not reasonable is agreeing the scope, geography and term without thinking about what you intend to do afterwards.
A non-compete clause drafted by the buyer's lawyer will be as wide as possible. Enforcement and scope depend on state law and change over time; your lawyer knows the current position.
Decide what you want to be free to do, and negotiate from there before the letter of intent fixes the shape.
The refusal of anything deferred
Sellers who insist on all cash at closing believe they are removing risk. They are moving it. A buyer who cannot defer any part of the price has only one place to put their uncertainty about whether earnings continue after the owner leaves, and that place is the price.
Deferred consideration decision
Will you accept any deferred element?
Negotiate size, conditions, protection
Lower headline, no say in shape
The buyer's concern has a name. Once the seller has been paid, the seller's incentive to keep customers, staff and suppliers in place disappears, and the buyer knows it. That is moral hazard in its ordinary form, and a transition period, a holdback or an earn-out is the buyer's answer to it.
A seller who understands why the deferred element exists can negotiate its size, its conditions and its protection. A seller who refuses it on principle gets a lower headline and no say in the shape. The options, and what each costs the seller, are on the deal structures page.
The pattern
Read the nine again and most reduce to one of two things: the seller acting as if the buyer would not test the record, or the seller acting as if the buyer's risk were not real. The diligence guide describes what testing looks like from the buyer's side. Every mistake above is easier to see from there.
