What makes a small business sellable, and what kills the price

Most owners think about selling once, near the end. By then, what sets the price has been baked in for years.

A buyer is paying for one thing: profit they can count on after you're gone. Everything they check is a way of testing that. If you understand what they're testing, you can spend the next few years making your business easier to say yes to.

The first test is whether the numbers are real. A buyer wants three years of clean books that match your tax returns. If personal spending runs through the business, or the books are months behind, they can't tell what the business earns. When they can't tell, they assume it's less, and they price it that way.

The second test is whether the business runs without you. If you're the one who quotes every job, knows every vendor, and handles every problem, the buyer isn't getting a business. They're getting a job that needs an owner in the building. The fix is written processes and people who can make decisions without calling you.

The third test is where the money comes from. If one or two customers bring in a large share of your sales, a buyer sees that revenue walking out the door the day one of them leaves. A spread-out customer base is worth more than a concentrated one, even at the same total sales.

The fourth test is whether the business owns what it runs on. The lease, licenses, bank accounts, phone number, website, and software should all be in the business's name. Anything in your personal name has to be transferred or rebuilt, and some of it can't be. A lease that won't transfer can stop a sale by itself.

The fifth test is the paperwork around ownership. If you have partners, is there a signed agreement? Is it clear who owns what and who can sign? Are sales tax and payroll taxes current? Open tax issues follow the business to the new owner, so buyers either hold back money at closing or walk.

None of these get fixed the month before you sell. They get fixed a little at a time, starting now. The good news is that every one of them also makes the business easier to run while you still own it. Clean numbers help you decide. A team that runs without you gives you your time back.