The short answer. Start 24 months out. Restate owner compensation to market at month 0 so the last three years of EBITDA reflect the restated number. Clean up owner-related expenses at month 12 minimum. Diversify customer concentration if any customer exceeds 20 percent of revenue. Document key processes so key-person risk drops. Every gap that emerges in due diligence is a lever the buyer will use to negotiate the price down. Close them before the sale.
The 24-Month Timeline
Month 24 (start): Restate owner compensation. This is the single biggest lever. Restate to market rate. The next three fiscal years become the ones a buyer will examine, and the restated EBITDA will be more defensible.
Month 18: Get a certified valuation. Reveals gaps. Not for pricing yet but for identifying what to fix.
Month 12: Clean up owner-related expenses. Move vehicle to personal. Remove family payroll or restate to actual work performed. Eliminate any personal expenses running through the business. Under audit, buyers will find these anyway. Getting ahead means the P&L that buyers see is close to the P&L they will inherit.
Month 12: Diversify customer concentration. Any customer over 20 percent of revenue is a discount trigger. Between 20 and 30 percent knocks the multiple down. Above 30 percent can kill the sale entirely. If concentration is high, dedicate a year to expanding the base.
Month 6: Document processes. Written SOPs. Delegated decision authority. Key employees with documented roles. Reduces key-person risk which is the second biggest multiple-suppressor.
Month 3: Prepare the CIM. Confidential Information Memorandum. The document buyers use to evaluate. Include restated financials, growth story, customer diversification, and process documentation.
Month 0: Go to market.
The Restatements That Matter Most
The three restatements that move the sale price most:
Owner compensation. If you are undermarking, restatement reduces reported EBITDA and the multiple applies to a smaller number. If you are overmarking (unusual but possible for smaller businesses), restatement increases EBITDA. Match to market so the number is defensible.
One-time expenses added back. Legal fees for a specific matter. A bad debt that was written off. An equipment purchase that was expensed rather than capitalized. These are legitimate add-backs that increase the number the multiple applies to.
Discretionary spending added back. Owner-related expenses that will not continue under new ownership. Vehicle, insurance, family payroll, personal expenses. All add back to EBITDA for valuation.
The net is normalized EBITDA. That is the number a buyer will apply the multiple to.
The Gaps Buyers Will Find
In due diligence, buyers examine three years of financials, tax returns, contracts, customer concentrations, employee agreements, insurance, litigation history, and operational processes.
Every gap in any of those areas is a negotiation lever. Weak process documentation reduces confidence in operational transferability. Customer concentration reduces confidence in revenue continuity. Undocumented add-backs reduce EBITDA credibility. Litigation reduces confidence in future obligations.
Fix what can be fixed. Disclose what cannot. Buyers will find both anyway. Discovery in due diligence produces adverse negotiation. Preemptive disclosure produces normal negotiation.
Frequently Asked Questions
Should I sell to a strategic or financial buyer?
Strategic pays higher multiples because they can capture synergies. Financial pays what the market allows for the standalone business. If a strategic buyer exists and is credible, negotiate with them first. Have a financial buyer as the backstop.
What is a broker's role?
A broker manages the process. Confidentiality, marketing to buyers, negotiation, due diligence coordination. They earn 8 to 12 percent of the sale price. For businesses under $2 million EBITDA, the value they add usually exceeds their fee. For larger deals, an investment banker may be more appropriate.
Should I stay on after the sale?
Depends on the buyer's model. Strategic buyers usually want the owner to stay for a transition period (6 to 24 months) at market compensation. Financial buyers usually want the owner to stay longer (24 to 60 months) as a management earnout. The choice depends on your retirement plan and the terms.
What if I need to sell in less than 12 months?
Every month less than 24 months costs some sale value. In an urgent situation, the priority order is: restate owner comp (fastest lever), clean up owner-related expenses (medium), and document processes (slowest). Customer diversification and revenue growth take longer than 12 months to move meaningfully.