Here’s a conversation I had last week. Business owner calls me: “Jim, I want to sell my business in the next six months. Can you help?”
“Sure,” I say. “Tell me about your business.”
Twenty minutes later, I’m mentally calculating how much money he’s about to lose. His business isn’t anywhere close to being ready for sale. He just doesn’t know it yet.
This happens all the time. Good owners running profitable businesses, completely unaware their company would get torn apart in due diligence.
How do you know if your business is ready for sale?
A business ready for sale meets specific buyer criteria: clean financials, documented systems, reduced owner dependency, and sustainable operations. Most businesses fail on at least three of these four requirements.
The selling a business checklist I use with Michigan clients has 47 items. Most owners nail about 15 of them when they first contact me.
That’s not criticism. It’s reality. You’ve been focused on running your business, not preparing it for sale.
Sign 1: You’re the only one who can do what you do
This is the number one reason businesses can’t sell for full value. The owner is the business.
The owner-dependent operation
You handle all major customer relationships. You’re the primary salesperson. You make every important decision. You’re the only one who truly understands the operations.
Buyers call this “key person risk.” They call it a deal-killer.
What buyers see
When buyers evaluate your business, they’re buying future cash flow. If you’re essential to that cash flow, it disappears when you leave.
A business worth $2M with strong management might sell for $1M if the owner is irreplaceable. Maybe less.
The Michigan manufacturing example
I worked with a Tier 2 automotive supplier. Owner handled all customer relationships with the three major OEMs. Nobody else had those connections.
Buyers wouldn’t touch it. Why buy a business where the main asset walks out the door?
We spent 18 months transferring relationships, building management depth, documenting processes. Then it sold for proper value.
How to fix owner dependency
Start delegating everything possible. Hire or promote a second-in-command. Document your decision-making process. Transfer customer relationships systematically.
This takes 2-3 years minimum. You can’t fake it. Buyers dig deep during due diligence.
Sign 2: Your financial records are a mess
Buyers want three years of clean, audited (or at least reviewed) financial statements. Most small Michigan businesses have tax returns and QuickBooks that haven’t been reconciled properly in years.
The financial red flags
Mixing personal and business expenses. No clear distinction between owner compensation and profit. Inventory numbers that don’t match reality. Revenue recognition that seems creative.
These aren’t just administrative issues. They’re value destroyers.
What business valuation preparation requires
Professional buyers need:
- Three years of accurate financial statements
- Clear owner compensation documentation
- Adjusted EBITDA calculations
- Working capital requirements defined
- No undisclosed liabilities hiding anywhere
The tax return problem
Many owners minimize reported income for tax purposes. That’s legal. It also makes your business look less profitable to buyers.
You can add back legitimate expenses during valuation, but it requires documentation. “Trust me, I really make more” doesn’t work.
The cleanup timeline
Getting financials buyer-ready takes 6-12 months minimum. You need:
- Professional accounting cleanup
- Proper chart of accounts structure
- Consistent monthly closings
- Reconciled bank statements and inventory
- Documentation for all adjustments
This costs $5,000-$15,000. It’s mandatory for serious buyers.
Sign 3: You’re too dependent on too few customers
The 80/20 rule applied to frcustomers is a warning sign. If 80% of revenue comes from 20% of customers, you have concentration risk.
If 50% of revenue comes from one customer? You have a ticking time bomb.
The concentration problem
Buyers worry: “What if that major customer leaves after I buy?”
They’re not being paranoid. It happens constantly. Key customers use ownership transitions to renegotiate terms or switch suppliers.
What buyers want to see
Ideally, no single customer represents more than 10-15% of revenue. If you have concentration, buyers want:
- Long-term contracts with remaining terms
- Strong relationships documented and transferable
- Demonstrated customer retention through previous ownership changes
- Diversification plan being executed
The Michigan seasonal business consideration
Many Michigan tourism businesses have natural concentration – summer customers represent 60-70% of annual revenue. That’s different from customer concentration.
Buyers who understand seasonal businesses expect this. What they don’t want is three customers generating most of your seasonal revenue.
How to diversify
Start actively pursuing new customers 2-3 years before exit. Document that you’re reducing concentration. Show the trend.
Even if you can’t fully fix it, showing progress and having a plan improves buyer confidence.
Sign 4: You have no documented systems or processes
Everything runs through your head and email. New employees take 6-12 months to become productive because nobody can explain how things actually work.
The tribal knowledge trap
Your business runs on institutional knowledge accumulated over decades. That knowledge leaves when you leave.
Buyers understand this. They reduce their offer accordingly.
What documentation buyers need
A complete selling a business checklist includes:
- Standard operating procedures for all key functions
- Employee handbooks and job descriptions
- Supplier and customer management processes
- Quality control and production workflows
- Sales processes and CRM documentation
- Financial processes and approval workflows
The family business succession challenge
If you’re planning succession planning for family business, documentation matters even more.
Your kids might know the business generally. Do they know which supplier to call when a specific machine breaks? Which customer needs calls returned within two hours? How to handle that one quality issue that comes up quarterly?
Document everything. Even “obvious” stuff.
Where to start documenting
Pick your most critical process. Document it step-by-step. Test it with someone unfamiliar with the task.
Repeat for the next most critical process. After 20-30 key processes are documented, you’ve covered 80% of operational knowledge.
This takes 6-12 months of consistent effort. Start now.
Sign 5: Your growth has stalled or revenue is declining
Buyers buy future cash flow. If your revenue has been flat for three years, you’re selling history, not a future.
The growth problem
Businesses sell for multiples of earnings. Growing businesses command higher multiples than flat or declining businesses.
A business growing 10-15% annually might sell for 5-6x EBITDA. The same business flat for three years might sell for 3-4x EBITDA.
On $500K EBITDA, that’s the difference between $2.5M and $1.75M. Growth matters.
Why stagnation happens
You’re tired. You’ve been running hard for 20 years. You stopped pursuing new opportunities because you’re focused on the exit.
Buyers see this immediately. They wonder: “Is this business dying? Is the industry dying? Did the owner stop caring?”
How to address stagnation
If you can’t grow the business, at least stabilize it. Show consistent revenue and earnings. Document your customer base stability.
Better: hire someone to drive growth while you prepare for exit. Even modest growth signals business health.
The Michigan market consideration
Some Michigan industries face headwinds – traditional automotive suppliers with EV transition, for example. If your industry is contracting, buyers adjust expectations.
Be honest about market conditions. Show how you’re adapting. Buyers respect realism over optimism.
Sign 6: Your employee situation is problematic
High turnover, key employees near retirement, thin management layer, unclear succession plans for critical roles – these are all red flags.
The employee risk factors
Buyers want stable teams. They’re buying:
- Institutional knowledge in your employees
- Existing relationships with customers and suppliers
- Operational expertise they can’t easily replace
- Management capability to run the business
The key employee issue
Who does business valuation during due diligence? Professional buyers do comprehensive assessment.
They’ll identify your key employees. They’ll want to meet them. They’ll want retention agreements. They’ll want to know succession plans.
If your answer is “I haven’t thought about that,” your value just dropped.
The Michigan labor market challenge
Michigan’s tight labor market makes employee stability even more valuable. Buyers know they can’t easily replace good employees.
If you have low turnover and strong team retention, highlight it. That’s a selling point worth real money.
How to strengthen your team
Two years before exit:
- Identify key employees who must stay through transition
- Create retention bonuses tied to sale completion
- Document succession plans for critical roles
- Cross-train to reduce single-person dependencies
This preparation increases buyer confidence and protects value.
Sign 7: You don’t know what your business is actually worth
Most owners either overvalue or undervalue their business by 30-50%. Both create problems.
The valuation disconnect
“I’ve put 25 years into this business. It’s worth $5 million.”
That’s emotional valuation. Buyers don’t care about your effort. They care about ROI on their investment.
What drives business value
Real business valuation looks at:
- Historical and projected earnings (EBITDA)
- Revenue trends and customer stability
- Market position and competitive advantages
- Owner dependency and management strength
- Industry multiples and market conditions
Professional valuation costs $3,000-$10,000. It’s the best money you’ll spend.
The overvaluation problem
Price too high and your business sits unsold for months. Good buyers move on. You eventually reduce price, but now you’re negotiating from weakness.
I’ve seen Michigan business owners reject fair offers because they “knew” their business was worth more. Two years later, they sold for less than the original offer.
The undervaluation danger
Some owners are so eager to exit they accept low-ball offers without proper valuation.
One Michigan service company owner took the first offer – $900K. Professional valuation after the fact showed the business was worth $1.6M. He left $700K on the table.
Get professional valuation early
Hire a business valuation expert 2-3 years before planned exit. Get realistic numbers. If there’s a gap between current value and your needs, you have time to fix it.
What to do if you see these signs
First, don’t panic. Most businesses aren’t sale-ready. That’s why proper exit planning takes 3-5 years.
Start with honest assessment
Go through this list item by item:
- Owner dependency level
- Financial record cleanliness
- Customer concentration risk
- Documentation completeness
- Revenue growth trends
- Employee stability
- Valuation accuracy
Rate yourself on each. Be brutally honest.
Create your preparation timeline
Based on your assessment, estimate how long each issue takes to fix:
Quick fixes (3-6 months): Financial cleanup, basic documentation Medium fixes (6-18 months): Customer diversification, employee retention plans
Long fixes (18-36 months): Owner dependency reduction, growth acceleration
Get professional help
You shouldn’t do this alone. I work with Michigan business owners on exit preparation all the time.
We create customized roadmaps addressing your specific gaps. We track progress quarterly. We adjust strategy as needed.
Let’s talk about getting your business sale-ready
I offer free consultations to assess exit readiness. We’ll go through the seven signs, identify your gaps, and create a realistic preparation timeline.
What we’ll discuss
In a 60-minute session:
- Current readiness assessment using selling a business checklist
- Value-building priorities for your situation
- Realistic timeline to sale-ready status
- Resources and support available
- Whether working together makes sense
Call me: (248) 957-0300
Everything is confidential. I sign NDAs. Nobody knows you’re preparing for exit unless you tell them.
The sooner you start, the more you keep
Every month you wait to address these issues is money left on the table.
The Michigan business owners who get full value for their businesses all did one thing: they started preparing years before they wanted to sell.
Those who wait until they’re “ready to exit” typically lose 40-60% of potential value. That’s $400K to $1.2M on a $2M business.
You’ve built something valuable. Don’t sabotage your exit by being unprepared. Get started now, even if you’re years away from selling.
Your future self will thank you when you’re depositing that full-value check.