Is Your Business Ready to Sell (or Raise)? A Founder’s Honest Checklist

Most owners first find out how a buyer sees their company during a meeting with a buyer. It’s a poor moment to learn.

This checklist is meant to let you find out sooner. It covers what a serious investor or buyer will look at, in roughly the order they’ll care about it. Go through it honestly, with a pen. Nobody passes everything, and a “no” isn’t a verdict on your business. It’s just something to fix, or to be ready to explain.

Start with why

Before the numbers, be clear with yourself on these. Everything else depends on them.

• Can you say in one sentence why you want to sell or raise, right now?
• If selling, do you know what you’d do on the day after, and are you at peace with it?
• If raising, do you know exactly what the money would pay for, and what it should achieve?
• Have you spoken to your family and any partners? Disagreements that surface in the middle of a deal can kill it.

A buyer will always ask why you’re doing this. “I’m tired after 20 years” is a fine answer. So is “we’ve outgrown what we can finance ourselves.” Answers that keep changing are what make people nervous.

Your numbers

This is where most companies have the most work to do.

• Do you have at least three years of accounts, ideally prepared or reviewed by an accountant?
• Do your accounts match your tax filings and your bank statements?
• Are your personal and business finances separate? Could you point out which costs are really personal, such as your car, your family’s phone bills or a relative’s salary?
• Can you say from memory your revenue, your profit, and how much cash you have?
• Do you know your margin on your main products or services?
• Do you know which customers and products make you money, and which don’t?
• Can you produce monthly figures, not just annual ones?

The uncomfortable point: sales that never went through the books mostly don’t count. Owners sometimes say, “The real profit is higher than the accounts show.” To a buyer, that means the accounts can’t be trusted, and possibly that a tax liability comes with the company. If you might sell in the next few years, the time to clean this up is now, with an accountant’s advice, because a buyer will usually want to see a clean record over several years.

How much the business depends on you

This is the question owners find hardest, and it has a large effect on value.

• If you took six weeks off, would the business carry on normally?
• Does anyone besides you hold the key relationships with customers and suppliers?
• Is there someone who could run daily operations?
• Are the important processes written down, or do they live in your head?

If everything runs through you, a buyer isn’t really buying a company. They’re buying a job, with a risk that you’ll leave. You can often raise the value of your business more by building a second-in-command than by any other single step.

Customers and revenue

• Does any one customer account for more than about a quarter of your revenue? What would happen if they left?
• Do you have written contracts with your main customers, or does it rest on personal relationships?
• Will those customers stay if you’re no longer there?
• Is your revenue recurring, or do you have to win it again every month?
• Can you explain why customers choose you over the competition, in words a customer would use?
• Is your revenue growing, flat or falling, and do you know why?

Legal and ownership

These issues are often simple to fix early, and painful to discover late.

• Is it clear who owns the shares, and is the ownership registered correctly?
• If you have partners, is there a signed agreement covering what happens if one wants to leave?
• Does the company actually own what it uses? Is the building, land, brand name or key equipment registered to the company, or to you or a relative?
• Are your staff properly registered, with contracts and contributions paid?
• Are your taxes up to date, and is there any open dispute?
• Do you hold the licences and permits you need, and can they transfer to a new owner?
• Is there any current or threatened court case?

If you’re unsure about any of these, a lawyer can usually give you a clear answer quickly, and it will cost much less now than it would in the middle of a negotiation.

Team

• Who would be essential to keep if the company changed hands? Do they know how valuable they are, and are they likely to stay?
• Is the team more than just family? If family members hold roles, do they do real jobs at real salaries?
• Could the company hire the next five people it needs?

If you’re raising money

• Do you know how much you need, for what, and how long it will last?
• Have you thought about how much of your company you’re willing to give up, and why?
• Are you ready to send an investor regular financial reports?
• Are you ready to have someone who can ask hard questions and whose agreement you’ll sometimes need?
• Do you want more than money from them? Can you name what, specifically?

The last two matter a lot. Taking on an investor is much like taking on a partner, and it’s far harder to undo than a loan.

If you’re selling

• Do you have a price in mind, and can you explain how you got there, using numbers instead of years of effort?
• Are you willing to stay on for a handover, and for how long?
• Would you accept part of the price later, or keep a small stake, if that helped close the deal?
• Does it matter to you who buys the company and what happens to your staff? Say so at the start.
• Have you thought about how to keep the sale confidential until the right moment?

The hardest gap to close is often between what the company means to you and what a buyer will pay for it. Your 20 years of work are real, but buyers pay for future earnings. Better to prepare for that conversation now than to meet it for the first time across the table.

Reading your results

• Mostly yes: you’re likely closer than you think. Find out what the business is worth, and start talking to people.
• A mix: this is the most common result. Make a list of your “no” answers, and fix what you can over the next 6 to 18 months. Most of it will improve the business even if you never sell.
• Mostly no in numbers or legal: start there, before you talk to any buyer or investor. Sound records and clear ownership come first, because every other conversation depends on them.

You don’t need a perfect company. Plenty of good deals get done with problems on the table. What buyers and investors don’t forgive is finding out for themselves something you already knew.

If you’d like a second pair of eyes on your list, that’s the kind of work Ortaku does, and the 10 companies we select get it for free. You can register here.

This checklist is general information, not legal, tax or financial advice.