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— A VPA Perspective

How to Prepare Your Company to Sell


Counsel on how to prepare your company to sell, including:

  • Determining transaction structure
  • Building company financials
  • Framing the business

Taking the step to sell your business can feel both exciting and nerve-wracking—this is your baby, after all. But when you feel you’re ready to let go and sell to a private equity firm or strategic buyer, what preparations do you need to make to go to market?

Despite inbound interest from buyers, your company isn’t going to sell itself. Any buyer worth talking to is going to spend a significant amount of time in due diligence, verifying that your business looks as good from the inside as the outside.

As such, you need to make sure your house is in order so you can impress the right buyers and ensure your financial structures are in place to avoid unnecessary taxation.

To prepare your company for sale, you will need to:

  • Determine how your corporate structure and tax liability will affect transaction structure
  • Conduct personal tax and estate planning
  • Streamline information gathering
  • Build transaction financials
  • Frame the business and sale for internal and external parties
  • Build a continuity/succession plan

As a first-time founder, I didn’t really know what it meant to run a process. [Vista Point] walked us through what that would look like, including timelines for the different milestones. They worked closely with our other team members to gather informatio As a first-time founder, I didn’t really know what it meant to run a process. [Vista Point] walked us through what that would look like, including timelines for the different milestones. They worked closely with our other team members to gather informatio

Determine how your corporate structure and tax liability will affect transaction structure

There are two primary structures of a transaction in which you can sell your company:

  • As an asset, meaning you retain ownership of the legal entity and are selling the assets and liabilities of the company to a buyer
  • As stock, meaning you are transferring legal ownership of the entity to the buyer, including its assets and liabilities

The way you structure your transaction will influence taxation as well as liability. Depending on your legal entity status (as a C-corp, S-corp, or LLC), some options will be preferable and other unavailable.

If you sell your company as an asset:

  1. Portions of the sale will be treated as ordinary income and taxed at a higher tax rate than the portions treated as capital gains. Depending on how the assets within the company are allocated based on tax standards, you might pay a lot of income tax and less capital gains tax, or vice versa. The nature of your business and the categorization of assets as ordinary income or capital gains will affect your final tax outcome.
  2. You will retain liability for any legal issues raised against the company, which isn’t ideal.

If you sell your company as stock:

  1. You will pay capital gains tax on the sale. Unless you’ve owned the business for less than a year, your capital gains tax on the sale of the business will be lower than your personal income tax, saving you money.
  2. You will transfer liability for any legal issues to the buyer.
  3. You automatically avoid the double taxation of a C-corp. All C-corp deals will be carried out as stock deals because assets would be double-taxed as a C-corp.

Selling the company as a stock is generally the preferred option for sellers, though sometimes there’s little or no difference for the seller in terms of tax incentives between a stock deal or an asset deal.

For the buyer, on the other hand, there may be a material difference from a tax perspective—often estimated at 20% the value of the transaction. 20% on a $100M deal is big for a buyer, in which case they’ll prefer the asset deal. Consequently, if there’s little or no tax consequences for a seller, they can usually convince a buyer to pay the difference between the tax rates plus a little more to give them a reason to sell the company as an asset instead of as stock.

The above strategy is only possible for LLCs and S-corps, due to the double taxation of C-corps on asset deals, which completely removes asset deals from consideration for C-corps.

Note: Another option available to S-corps is a 338(h)(10) election, which effectively treats a deal as an asset transaction for tax purposes, but transfers post-deal liability as if the deal were a sale of stock.

Conduct personal tax and estate planning

The sale of your business is going to result in a significant amount of cash flowing in your direction—carrying all the tax and estate implications with it.

Tax planning involves planning the mix of financial vehicles (i.e. stock gifts, trusts, charitable donations, etc.) that you will use to distribute your wealth in the most tax-advantaged way possible.

For example, one tax provision many business owners can take advantage of is the Internal Revenue Code’s section covering qualified small business stock. In this provision, for shareholders and businesses that meet certain criteria, the capital gains on shares in a small business are exempt from federal taxes. Depending on the size of the transaction, this provision can mean a large amount of money going back to the founder instead of to the IRS.

You should not wait until a transaction is near a close to start tax planning. If you wait until too late in a transaction, you may not be able to take advantage of certain financial vehicles (such as charitable trusts) that are tax-advantaged but require planning with an advisor or lawyer.

Some vehicles require you to plan far in advance before the value of your equity appreciates. For instance, when gifting or selling stock to beneficiaries, you want to do so when the stock is at a lower value. If you wait until a transaction begins, the competitive valuations from potential buyers/investors will set a high value for the stock, closing the window for the most tax-advantaged gifting opportunity.

Tax planning seems like a no-brainer—if you can avoid paying taxes on the sale of your business, why wouldn’t you? Estate planning, on the other hand, might feel like something to address later in life, not when you’re preparing to sell your business.

Preparing early, however, is essential because there are certain early milestones in the transaction process that can affect your ability to plan for trust and estate items.

And consider this: if something were to happen to you following the transaction, what would happen to all that cash you recently acquired? Planning your estate beforehand can mitigate confusion and ensure your wealth lands in the hands of your intended beneficiaries.

A qualified tax and estate planner can assist with the process and will advise you on ways to maximize your outcomes from a tax/estate perspective.

Streamline information gathering

Many of the founder-led companies we work with haven’t had the benefit of a COO or CFO to keep their information clean and organized. As a result, part of the preparation process will be to organize your data for better information gathering.

Information gathering involves pulling the data you need to answer buyers’ key questions during the diligence process. Streamlining your information gathering involves organizing and structuring data for ease of access so you can easily find and pull the data buyers ask for.

A few reasons why you should streamline information gathering include:

  • Shortening the length of time in diligence, thus reducing the risk a buyer will find something unsatisfactory
  • Speeding up the transaction process to a successful outcome
  • Operating your business more efficiently

You should mirror your information gathering around a due diligence checklist, which is a fairly extensive list that any buyer would want to see prior to acquiring the company. Here is a small example of such a checklist, categorized by the type of information:


  • Historical pricing with commentary
  • Quotas and attainment for sales team by employee with detailed commission structures broken out
  • Marketing spend breakdown by channel for the last three years
  • Top of funnel data (# of leads/opportunities) by month
  • Social media handles, accounts, tags, etc.


  • Materials and security agreements from any previous investment rounds
  • Materials about any joint venture, partnership, cooperation, etc.
  • Voting trusts, agreements, and other equity holder agreements relating to the company


  • All tax and information returns filed by the company during the past six years
  • Detailed breakdown of all revenue broken out by state and any unpaid sales tax liability for the past three years

Customer Data

  • List of all active customers, including relevant information
  • List of all churned customers over the last three years and rationale for why you lost them
  • List of all affiliates and/or legal partners with contractual revenue share and/or fees paid

The above is just a taste of some of the information a buyer might want. In order to gather information quickly upon request, whenever possible your information should be:

  • Indexed in a way to make it easily searchable
  • Centralized in a single repository

Investing in reporting systems for key metrics

If you haven’t already, you should consider investing in reporting systems that track key metrics for a real-time pulse on the business. These systems will not only be helpful for managing your business, but will also provide diligence information to potential buyers and investors in a timely fashion. Below are some example platforms:


  • Baremetrics
  • Chargify
  • SaaSOptics
  • Chargebee
  • Recurly


  • Google Analytics
  • Adobe Analytics
  • Shopify (if applicable)
  • BigCommerce
  • Magento

Mobile apps

  • Localytics
  • Firebase
  • Mixpanel
  • AppDynamics
  • Flurry
  • App Annie
  • AppsFlyer

Addressing disparate data

As you organize data, you may identify situations where data doesn’t line up between systems. For example, the revenue data in your CRM might be different from what you show on your P&L statement.

In these cases, you will need to be able to account for the difference and either resolve it or be able to explain the discrepancy to buyers.

Documenting key systems and processes

You should avidly maintain documentation of policies and procedures so future acquirers or investors can easily run and manage the business. Buyers want to keep your business moving forward, so make sure they have all the necessary resources to do so.

Build transaction financials

Every company reports their financial and customer data differently internally. During the preparation phase, you will want to synthesize the data in a way that buyers and investors are accustomed to seeing that data.

For example, you want to make sure you have the right processes in place to correctly track metrics like COGS and that your COGS aren’t overloaded/underloaded. As an illustration, if you’re a SaaS company that includes customer support with your software package, your COGS might be underloaded if you don’t include customer support salaries in COGS.

Another metric buyers might be interested in that founders don’t always have sorted out is gross margin by product. If your company is selling multiple products and you need to figure out the unit economics of each product, you want to make sure COGS (such as for customer support and hosting costs) are correctly allocated to each product to correctly calculate gross margin.

Each vertical and business model will have its own set of metrics buyers/investors will be interested in. Here are some examples based on the business model:



  • Gross merchandise volume
  • Net revenue
  • Annual/monthly visits to website
  • Conversion rates
  • Average order value
  • Net promoter score

Mobile apps

  • Daily/monthly active users
  • Traffic by channel
  • User acquisition
  • Session interval/length
  • Conversion rates
  • Average revenue per user
  • LTV
  • CAC

These are just some of the metrics a potential buyer will want to look at. An investment banker can help you know what buyers care most about and facilitate the process of sharing information with buyers at the right time.

Will I need to have an audit of my financials?

There is no strict requirement to conduct an audit during a transaction, but acquirers or investors will typically require some quality-of-earnings (QofE) report. This report will determine if the numbers you reported are accurate and ensure there aren’t any anomalies with your financials.

Metrics are useful for understanding your business—but even more so when placed in the right context. A key component of preparing to sell is framing the business.

Frame the business and sale for internal and external parties

Framing a business is about telling the story of the business: where it came from, where it is currently, and where it’s going. Metrics make up a large part of that story, but depending on the audience, you’ll also want to answer one big question: Why are you selling?

Framing for buyers and investors

"Why now?" is most relevant to potential buyers who have a future interest in how the business performs. A major question they are trying to answer is “What does this founder know that I don’t know?” To find the answer, buyers will be looking specifically for concerns like:

  • Slowing growth
  • Recent loss of major customers
  • Strong attachment of current customers to the founder
  • Total addressable market size
  • Founder interests following the transaction (could indicate a grab-the-money-and-run situation)

Founders have various ways to frame the sale in a favorable light, focusing on how the founder would like to:

  • De-risk net wealth by liquidating all or a portion of wealth tied up in the business
  • Work with a strategic buyer or investor to take advantage of resources and capabilities (e.g. sales channels, personnel, etc.)
  • Move onto other ventures
  • Grow the business beyond the founder’s ability to scale it
  • Avoid managing a sales and marketing organization
  • Avoid dealing with HR issues that have begun to crop up

Investment bankers are experts at framing businesses and can help you present your business in a favorable light to buyers.

Framing for employees

In the event that employees become aware of the sale, they will likely have concerns about the future of the company and job security. A simple way to frame the sale to employees is to tell them that you’re working to find a capital to take advantage of growth.

Framing for customers

In most cases, you don’t need to proactively communicate about the sale to customers before the transaction closes. Once it does, you can use a similar message to what you shared with employees.

Buyers may, however, be interested in speaking to some of your customers to learn more about the customer experience. When requesting customer references, you should work closely with your investment bank.

Communicate a continuity/succession plan

Because you and your business are likely deeply tied together in terms of success and culture, potential buyers will also be interested in knowing how you intend the business to continue forward following the sale. A continuity/succession plan can help address this concern.

Founders are often involved in managing the day-to-day business, which raises concerns for buyers that the business won’t be able to operate as usual if the founder leaves. A continuity/succession plan is usually a verbal plan that communicates to buyers that the company:

  • Has a strong second layer of management. Having a good second layer management team in place increases the value of the business for buyers because they feel confident the business can move forward.
  • Can operate without the founder present. If buyers feel the company is too dependent on the founder, they may force owners to stay on post-transaction for months or even years to ensure a good transition. If your goal is to move onto other ventures, this option isn’t ideal.

Buyers have a lot of exposure to the founders, so they often overestimate the importance of the founder sticking around. Communicating the strength of the company independent of the founder is essential.

Taking Your Business to Market

If you follow the above guidelines, when the time comes to take your business to market, you will have a well-positioned business ready for the rigorous due diligence process.

Of course, as a founder you’re certainly busy running the business, and the above is just a glimpse of what goes into preparing your business to sell. Hiring an investment banker can give you access to the resources and expertise you need to successfully sell your business.

Modified on Jun 23, 2020