top of page

M&A Monday: How to Kickstart Business Sale Prep: Your First Five Steps

Updated: 1 day ago


M&A Monday: How to Kickstart Business Sale Prep: Your First Five Steps | Decipher Your Value


Thinking about selling your business? Whether you're planning to exit in six months or five years, business sale preparation in California requires careful planning and strategic thinking. At Decipher Your Value, we've seen hundreds of business owners navigate this process, and those who start early always come out ahead.


The reality is that preparing to sell your small business isn't something you do in a few weeks. It's a systematic process that can take 12-24 months to execute properly. But don't worry: we're breaking it down into manageable steps that will set you up for success.

Here are the first five critical steps every California business owner should take when starting their small business exit plan.

Step 1: Get Your Financial House in Order

Before you even think about putting your business on the market, you need to ensure your financial records are pristine. This means more than just having your books balanced: it means creating a clear, compelling financial story that buyers can easily understand.

Start with these financial fundamentals:

  • Organize three years of tax returns (both business and personal if you're a pass-through entity)

  • Clean up your profit and loss statements to remove one-time expenses or owner perks

  • Document all revenue streams and explain any seasonal patterns

  • Prepare a detailed breakdown of expenses with clear categorization

  • Create cash flow projections for the next 12-18 months

One common mistake California business owners make is mixing personal and business expenses. Start separating these immediately. Buyers want to see exactly how much money the business generates without owner dependencies.



M&A Monday: How to Kickstart Business Sale Prep: Your First Five Steps | Decipher Your Value


Pro tip: Consider having your financials reviewed by a CPA who specializes in business sales. They can help you identify areas that might raise red flags with potential buyers and suggest ways to improve your financial presentation.

Step 2: Document Your Operations and Systems

Buyers aren't just purchasing your current revenue: they're buying your ability to generate future profits without you. This means you need to prove your business can run smoothly even when you're not there every day.


Create comprehensive documentation for:

  • Standard operating procedures (SOPs) for all key processes

  • Employee roles, responsibilities, and compensation structures

  • Vendor relationships and contract terms

  • Customer acquisition and retention strategies

  • Quality control and compliance procedures

Start by identifying the top 10-15 processes that are critical to your business operations. Write them down step-by-step, as if you're training someone who's never worked in your industry. This documentation will be invaluable during due diligence and will demonstrate that your business is truly systems-dependent, not owner-dependent.

According to the Small Business Administration, businesses with documented processes and procedures typically sell for 15-25% higher multiples than those without proper documentation.

Step 3: Strengthen Your Management Team

Nothing kills a deal faster than a buyer realizing the business can't function without the owner. If you're the only person who knows how to run key aspects of your business, you need to start delegating and training immediately.

Focus on building strength in these areas:

  • Financial management: Ensure someone other than you can explain the financials

  • Customer relationships: Introduce key customers to other team members

  • Operations oversight: Train managers to handle day-to-day decisions

  • Vendor relationships: Document key supplier contacts and terms

This doesn't mean you need to hire expensive executives, but you do need capable people who can demonstrate competency to potential buyers. Consider promoting from within and investing in training for your best employees.



M&A Monday: How to Kickstart Business Sale Prep: Your First Five Steps | Decipher Your Value


Many successful California business sales involve keeping the existing management team in place post-sale. Start positioning your key employees as valuable assets rather than just overhead costs.

Step 4: Address Legal and Compliance Issues

Legal problems can derail a sale faster than almost anything else. California has particularly strict requirements around employment law, environmental compliance, and licensing, so it's crucial to address any potential issues early.

Conduct a comprehensive legal audit covering:

  • Business licenses and permits (ensure all are current and transferable)

  • Employment agreements and HR compliance

  • Customer contracts and terms of service

  • Intellectual property protections (trademarks, copyrights, trade secrets)

  • Real estate leases and property agreements

  • Insurance coverage and claims history

If you discover any legal issues, address them now rather than hoping they won't come up during due diligence. The California Secretary of State website provides excellent resources for ensuring your business entity status and filings are current.

Common California-specific issues to address:

  • Workers' compensation insurance compliance

  • California Environmental Quality Act (CEQA) requirements if applicable

  • Local business license requirements (these vary significantly by city)

  • Sales tax compliance and nexus issues

Step 5: Develop Your Growth Story

Buyers don't just want to know what your business has done: they want to understand its future potential. This is where many business owners struggle because they're so focused on day-to-day operations that they haven't developed a compelling vision for growth.

Create a growth narrative that includes:

  • Market opportunity analysis: What's the total addressable market for your products or services?

  • Competitive advantages: What makes your business unique or difficult to replicate?

  • Expansion possibilities: Geographic expansion, new product lines, additional services

  • Operational improvements: Areas where a new owner could increase efficiency

  • Technology opportunities: How could digital tools or automation improve the business?

Your growth story should be realistic and backed by data. If you claim there's an opportunity to expand into neighboring markets, show demographic data and competitor analysis to support that claim. If you believe the business could benefit from improved marketing, provide examples of successful strategies in your industry.


M&A Monday: How to Kickstart Business Sale Prep: Your First Five Steps | Decipher Your Value


According to SCORE, businesses that present a clear growth plan to potential buyers typically receive 20-30% more offers than those that don't.

Research your industry trends using resources like:

  • Industry association reports

  • Government data from the Bureau of Labor Statistics

  • Trade publications and market research

  • Local economic development reports

Remember, you're not just selling what the business is today: you're selling what it could become under new ownership.

Business Sale Prep - Building Your Foundation for Success

These five steps form the foundation of effective business sale preparation. While each step requires significant time and effort, completing them early in your small business exit plan will pay dividends when you're ready to go to market.

The key is starting early and being systematic in your approach. Don't try to tackle everything at once: pick one area and work on it consistently until it's complete, then move to the next.

Remember, selling a business is often a once-in-a-lifetime event for most owners. The preparation you do now will directly impact both the sale price you receive and how smoothly the transaction proceeds. Taking these steps seriously will position you for a successful exit when the time comes.

Getting started early creates options — not pressure


The first steps in sale preparation are less about committing to a timeline and more about understanding where you stand today.


Clarity around value, risk, and readiness helps owners make smarter decisions — whether a sale happens next year or several years from now.



If you’d like a practical snapshot of how buyers may currently view your business — including strengths and potential concerns — a Market Snapshot can help you prioritize what matters most.


Get a confidential Market Snapshot to guide your preparation



Sources

 
 
 

Comments

bottom of page