Most owners start thinking about a sale when they are ready to stop working, which is usually too late to change what a buyer sees. The work that makes a business sellable takes one to three years, and most of it also makes the business easier to run in the meantime.

What a buyer is buying

Future cash flow, and the confidence that it continues after you leave. Every element of saleability follows from that.

Profit that depends on your relationships and judgment does not transfer. A buyer assessing that business is being asked to purchase your continued attendance, which most will decline and the rest will price very low. See manual vs automatic.

The four things to fix

Owner dependency. Transfer delivery, sales, relationships and decisions, in that order. The test is two weeks unreachable. See owner dependency and does your business run without you.

Revenue predictability. Contracted recurring revenue is worth a multiple of project revenue, because it can be forecast. Move clients onto contracts with terms, notice periods and renewal dates. See recurring revenue.

Client concentration. No client above roughly fifteen percent. A buyer treats one dominant account as a single point of failure they are inheriting. See client concentration.

Documentation. Delivery processes, pricing rules, decision criteria. This is what converts the business from something you know into something that can be handed over. See process debt.

The timeline

This takes two to three years done properly. A buyer will examine three years of accounts, so changes made in the final six months appear in the diligence as recent and unproven.

Start before you intend to sell. The work that makes a business sellable is the same work that makes it worth owning — it produces a company that runs without consuming your week, which is worth having whether or not you ever transact.

A worked example

An agency turns over $1.2 million with $300,000 of profit. The founder leads every sales call, one client is 40 percent of revenue, and most work is sold project by project.

Offered as it is, a buyer sees profit that could leave with the founder or with the big client, and may offer around two times profit, often tied to a long earn-out. That is $600,000.

Two years later, half of revenue is on annual contracts, the largest client is under 20 percent, and a hired lead runs sales. Profit is about the same. Multiples vary by industry and buyer, but four to five times is now a reasonable expectation, which puts the same $300,000 at $1.2 to $1.5 million.

What it is worth

Small service businesses typically trade on a multiple of adjusted profit, with the multiple driven by exactly the four factors above. See how to value a service business.

If you want the number rather than the argument, the Sellability Scorecard is the ten questions a buyer asks, scored. It is free and takes a few minutes, and the result is usually lower than owners expect — which is the useful part, because every point it costs you is a specific thing you can go and fix.