What Do I Need to Fix Before Someone Tries to Buy My Company? A Pre-Sale Checklist for Owners
What do I need to fix before someone tries to buy my company? It is a smart question to ask early, because a buyer's diligence team will look for problems whether or not you have. Issues found by the buyer tend to become price reductions, escrow holdbacks, or tougher contract terms. Issues you find and fix first are usually far less expensive.
This checklist covers the areas buyers commonly examine, from financial records and tax compliance to contracts and real estate, plus the personal wealth and tax items owners often overlook when preparing a business for sale. Not every item will apply to your company, and some fixes take months or years, so starting early matters.
Start Here: A Complimentary Pre-Sale Wealth and Tax Review
Fixing the business is half the job. The other half is making sure your personal finances are ready for a sale. Compound offers a complimentary, no-obligation pre-sale wealth and tax review that may identify tax exposure, gaps in your personal balance sheet, and planning steps that need lead time. Request your pre-sale review.
1. Financial Statements Buyers Can Trust
Many private companies keep books mainly for tax filing. Buyers want more: consistent monthly statements, accurate revenue recognition, reconciled balance sheet accounts, and a clear explanation of any adjustments to earnings. Many buyers commission a quality of earnings review, and gaps found there can lead to renegotiation.
Common fixes include:
Separating personal and family expenses from business expenses
Documenting owner compensation and one-time items that may be added back
Reconciling inventory, receivables, and payables regularly
Moving to accrual-based reporting if you currently rely on cash-basis statements
Our guide on getting your financials ready to sell next year goes into more detail, and Compound's client accounting services can help owners build reporting that holds up in diligence.
2. Tax Compliance at the Business Level
Buyers often inherit tax exposure, especially in a stock sale, so they look closely at:
Sales and use tax: whether the company collects and remits correctly in every state where it may have obligations
Payroll taxes and worker classification: whether contractors should be treated as employees
Income tax filings: whether returns are filed and consistent with the financial statements
Multi-state exposure: whether growth into other states created filing obligations that were missed
Some issues can be resolved through amended filings or voluntary disclosure programs, which take time. Working through them before a sale is usually better than negotiating around them during one. Compound's tax planning and preparation services can help review compliance in advance.
3. Customer, Supplier, and Contract Issues
Buyers want to know that revenue will continue after a sale. Items to review include customer concentration, contracts that require consent to assign or that end on a change of control, informal handshake arrangements with major customers, and supplier relationships with no written terms. Where possible, documenting relationships and diversifying revenue before a sale may help. See what buyers look for when they buy a business like yours.
4. People and Key Employee Risk
If one or two people besides you hold critical knowledge, buyers will ask how they will be retained. Employment agreements, documented roles, and retention incentives may reduce that risk. Make sure employee handbooks, benefit plans, and retirement plan filings are current, since compliance gaps in these areas are a common diligence finding.
5. Legal, Real Estate, and Equipment Items
Diligence often reviews corporate records, ownership documents, licenses and permits, pending disputes, intellectual property ownership, and environmental matters for certain industries. If you own the building personally and lease it to the business, buyers will want a market-rate lease in writing. Deferred maintenance or aging equipment may lead a buyer to lower the price to account for future capital spending. Your attorney should lead the legal review.
For a fuller list of warning signs, read the red flags buyers look for that could kill a deal and what due diligence means and what buyers will ask for.
How to Prepare Business for Sale on the Personal Side
Business fixes often have personal financial effects that owners should plan for:
Cleaning up personal expenses may raise reported business profit, and it may also change your personal cash flow and tax picture. Plan for that before it happens.
Owned real estate can be sold with the business or kept as an income-producing investment. Each choice has different tax and diversification implications.
Estate and gifting steps generally work best before a buyer sets a value. Coordinate them with your estate attorney.
Your post-sale income plan should be modeled in advance so you know what the business needs to sell for.
This is where wealth management and tax planning come together. When the same team sees both the company and your personal balance sheet, fixes can be sequenced to support both a stronger sale and a stronger plan afterward.
Still Asking What You Need to Fix Before Someone Tries to Buy Your Company?
If you are unsure whether your company is ready, start with is my business even sellable, or do I need to fix things first. Compound's business transaction services can help owners review readiness and prepare for diligence. We work with business owners throughout Wisconsin, including Milwaukee, Brookfield, Madison, Appleton, Oshkosh, and Kenosha, and in surrounding areas.
Want a second set of eyes before buyers arrive? Request a complimentary pre-sale wealth and tax review.
Frequently Asked Questions
What do I need to fix before someone tries to buy my company?
Common priorities include reliable financial statements, business tax compliance, customer and contract risks, key employee retention, legal and real estate documentation, and your personal wealth and tax plan.
How long does preparing a business for sale take?
Simple cleanups may take a few months. Issues such as customer concentration, tax compliance gaps, or building a management team may take one to three years.
Should I fix problems or just disclose them to buyers?
Disclosure is required for material issues, but fixing problems in advance generally gives you more control and may reduce price reductions, holdbacks, or tougher contract terms.
What is a quality of earnings review?
It is an in-depth analysis, often commissioned by a buyer, that tests whether reported earnings are accurate and sustainable. Some sellers commission their own in advance to find issues first.
Compound is a registered investment adviser. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Tax laws are complex and subject to change. Strategies discussed may not be suitable for everyone, and there is no guarantee that any strategy will achieve its objectives or reduce taxes. Calculator results are hypothetical, are not guarantees of future results, and do not reflect any actual investment. Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss. Please consult your tax, legal, and financial professionals before acting on any information in this article. For more information, see Compound's Form ADV, available at adviserinfo.sec.gov.
About Compound Wealth
Compound Wealth brings together professionals across tax planning, wealth management, accounting, and business transition services to provide a coordinated planning experience. This collaborative approach supports evaluating financial decisions from multiple perspectives while supporting each client's broader planning objectives.
