The period before you receive a Letter of Intent (LOI) is critical. Buyers are evaluating you, and every question you can't answer or document you can't produce erodes confidence and gives them leverage to negotiate down.
This guide covers the essential preparation across financial, legal, and operational areas. Start working through these items 6-12 months before going to market. The more prepared you are, the stronger your negotiating position.
Why Preparation Matters
Buyers evaluate dozens of potential acquisitions. The ones that move forward quickly are the ones where sellers have their documentation ready, financials clean, and answers prepared. Poor preparation signals risk.
Reduces buyer uncertainty
Complete documentation demonstrates you run a professional operation and have nothing to hide.
Accelerates due diligence
Having materials ready means fewer delays, less back-and-forth, and faster closing.
Preserves deal value
Surprises during diligence lead to price reductions. Preparation minimizes negative surprises.
Strengthens your position
Prepared sellers negotiate from strength. Unprepared sellers negotiate from weakness.
Financial Preparation
Financial documentation is the foundation of any M&A transaction. Buyers need to verify your reported performance, understand the quality of your earnings, and model future cash flows.
What to Prepare
- Clean, reconciled financials for the past 3 years (monthly P&L, balance sheets, cash flow)
- Documented EBITDA adjustments and add-backs with supporting evidence
- Tax returns (business and personal) for 3 years, including all schedules
- Working capital analysis showing normalized requirements
- AR/AP aging reports with notes on significant items
- Capital expenditure history and future requirements
Common Mistake
Legal & Compliance
Legal preparation ensures buyers can get clear title to what they're purchasing and understand any liabilities they're inheriting. Messy legal situations delay or kill deals.
- Corporate structure documentation (articles, operating agreements, cap table)
- Material contracts over $25K annually (customers, vendors, leases)
- Intellectual property inventory with assignment documentation
- Insurance policies and 5-year claims history
- Litigation history and any outstanding legal matters
- Regulatory licenses, permits, and compliance documentation
- Undisclosed litigation or disputes (even if settled)
- IP created by contractors without proper assignment
- Contracts with unfavorable change-of-control provisions
- Expired or non-transferable licenses
Operational Readiness
Operational documentation shows buyers how the business actually runs and whether it can function without you. Businesses that depend entirely on the founder command lower valuations.
- Customer list with revenue concentration analysis
- Vendor relationships and supply chain documentation
- Standard Operating Procedures (SOPs) for core processes
- Technology systems inventory and documentation
- Organization chart with compensation data
- Key employee contracts and retention agreements
Key Takeaways
Key Takeaways
- 1Start 6-12 months before going to market — many items take time to prepare properly
- 2Document everything with supporting evidence — claims without proof get rejected
- 3Address gaps proactively — knowing weaknesses lets you manage expectations
- 4Work with experienced advisors — they identify gaps you don't know you have
The effort you put into preparation directly impacts your outcome. Prepared sellers close faster, maintain deal value, and experience less stress throughout the process.
Ready to Start Preparing?
Our team has guided hundreds of founders through successful exits. Schedule a confidential conversation to discuss your timeline and preparation needs.
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