What to do before selling your business: a three-year preparation plan

The short answer: start three years out

Begin preparing about three years before you want to sell. Use year three to build clean financials, contracts and ownership paperwork; year two to make the company run without you and to inventory your systems and records; and the final year to prepare for diligence, choose an advisor and go to market. Each step makes the business easier to value and quicker to close.

The records inventory is easy to leave too late, and it is worth doing early. It shortens diligence, shows buyers how the company actually runs, and, if your company had 50+ full-time employees at peak, gives you time to decide whether to license operational records through SourceX before you sell.

Before you start: what to have in place

• A target window for the sale, even a rough one
• A personal financial plan that says what you need from the sale; if you need cash sooner, read how to get liquidity without selling
• An outside accountant who can review or audit your statements
• A business attorney with M&A experience
• A list of every software system the company pays for, and who administers each one

Year three: build a clean base

1. Bring the financial statements up to a standard buyers trust. Move to accrual accounting if you are not there yet, close the books monthly, and ask your accountant whether reviewed or audited statements suit your likely buyers.
2. Separate personal and business spending. Every add-back you claim later needs support, and fewer add-backs mean fewer arguments.
3. Paper every material customer relationship. Put verbal arrangements in writing and note any change-of-control or assignment clauses.
4. Fix ownership of work product. Confirm employees have signed confidentiality and IP assignment agreements, and get written assignments from contractors who built anything important.
5. Stop losing history. Set retention rules so email, files and old systems are archived rather than deleted, and export any tool before you cancel it.
6. Read your privacy policy and terms of service. Know what you have promised customers about their data. If you want more room later, change the terms going forward with counsel's help. FTC staff have warned that quietly adopting more permissive data practices, such as using customer data for AI training, through a retroactive change to terms or privacy policies may be unfair or deceptive (FTC staff, February 2024).

This is general information, not legal, tax or financial advice. Confirm with your own counsel before changing any customer-facing terms.

Year two: make the company transferable and map its records

1. Reduce owner dependence. Hand key customer relationships to account leads, name a second-in-command and write down the decisions only you make today.
2. Document how the work gets done. SOPs, playbooks and checklists show buyers the business is repeatable without you.
3. Reduce concentration. If one customer or supplier dominates, start diversifying now; it takes more than a year to show up in the numbers.
4. Build a systems and records inventory. For each system, note what it holds, how many years of history it has, who administers it and whether it can be exported. The data inventory builder helps you list systems and records.
5. Decide whether to license records before the sale. If the inventory shows years of connected records, check fit now, while there is time to decide without a buyer waiting.

Under a records license, a data buyer gets the right to use a chosen slice of your company's records, usually on an exclusive basis for AI training and for a fixed term. You still own the data and the company, you approve the price and terms before anything binds you, and a single payment typically arrives within about 60 days of invoicing once the buyer has chosen its data. A license signed before you go to market becomes a disclosed contract in diligence; one started in the middle of a sale process complicates it. That is why year two is the natural point to decide.

To be considered, a company should be US-based, have reached 50+ full-time employees at peak (contractors excluded), have several years of documented operations and clear rights to its records, and have an owner or executive who can sign. The who qualifies page explains each requirement.

Year one: prepare for diligence and go to market

1. Run diligence on yourself. Work through the sell-side due diligence checklist and fix what it finds before buyers do.
2. Consider a sell-side quality of earnings review. It tests your add-backs and working capital before a buyer's accountants do.
3. Get a realistic valuation. Use it to set expectations, not just an asking price.
4. Choose your advisor. Match a business broker, M&A advisor or investment bank to the company's size and likely buyers.
5. Build the data room. Index documents by workstream and include any signed license.
6. Plan confidentiality and retention. Decide when key managers are told, and consider retention bonuses for the people a buyer will want to keep.

The broader selling a business checklist covers the sale process itself, from teaser to closing.

The three-year runway at a glance

Common mistakes

Illustrative example

Illustrative: the owner of a fictional 140-person IT services firm plans to sell in three years. In year three the controller moves the books to a monthly accrual close, and counsel finds three contractors who built the ticketing workflows without a written assignment; all three sign one. In year two the owner names an operations director, and the inventory shows twelve years of ticket history, project records and runbooks across eleven systems. The owner screens the company and explores a license before going to market; after agreeing price and terms, the company signs, and the agreement goes into the data room. In year one the broker runs the process with the license disclosed from the first buyer call.

Next step

Start with the inventory: list every system you pay for, how far back it goes and who can export it. Then run the company fit checker and, if the company passes, apply at sourcex.si/apply. Brokers, accountants and wealth advisors guiding owners through this runway can register as a partner.