In my earlier years, I had the privilege of being a high school basketball coach. Each season, our coaching team gathered to strategize for the upcoming games. Our top priority every year was preparing our team to be in peak basketball condition to handle the challenges of the competitive schedule. Typically, we had about four weeks from the first practice to the first game.

During these practices, we emphasized physical conditioning, including demanding sprints that sometimes lasted up to five minutes. These extended running drills were designed to boost endurance. Our preseason workouts also incorporated strength training, stretching, and skill development. While there were occasional complaints about the intensity of these workouts, we consistently reminded our players that we were preparing them for the entire five-month season, during which we aimed to compete for a championship—something we achieved every year.

We often told our players, “The season is like a marathon, not a sprint.” To finish strong and have a successful season, thorough preparation was essential.

This principle also applies when preparing your business for sale. The groundwork laid before listing your business on the market is like the preseason in sports—it’s about getting your business in its best possible condition for what lies ahead. Some of this preparation may be straightforward, while other aspects might be more complex. Nevertheless, it is necessary, even critical, for making your business appealing to potential buyers.

Buyers are primarily interested in the return on investment (ROI) they can achieve when purchasing a business. Most buyers do not have a deep understanding of how your business operates, so you must show them that the value they perceive can be transferred to them as new owners.

As you start the process of preparing your business for sale, it’s essential to adopt an investor’s mindset and temporarily set aside your owner’s perspective.

Begin by Identifying Your Business Type

Small to medium-sized businesses typically fall into one of two categories:

1. Lifestyle Business: These businesses rely heavily, if not entirely, on one person, typically the founder. They function as a job that provides income for the owner’s family. In such businesses, the owner often directly oversees most, if not all, employees. If the owner is absent for any period, the business likely ceases operations. These businesses often lack transferable value and are difficult to sell. Without defined processes, systems, a competent team, and effective management, generating ROI over time is improbable.
2. Scalable Enterprise: Scalable enterprises are built to expand in size and function as financial resources, revenue, and profits grow. These businesses have a management team responsible for daily operations, a sales function that generates revenue from a loyal customer base, skilled employees leveraging their abilities, and a culture aligned with the ownership’s vision or that of a board of directors or advisors. Unlike lifestyle businesses, scalable enterprises do not rely on the skills or talents of a single individual. They operate effectively through the coordinated efforts of various components of the organization.

Scalable businesses can range in size based on their organizational structure. Smaller scalable businesses may begin with a few individuals managing multiple roles but can develop into larger entities as financial growth allows for more specialized staff. This shift towards a scalable business relies on structuring the organization effectively.

A business becomes saleable when it can produce profits that provide the owner with a reasonable ROI for the invested capital. Employees in functional roles should be compensated with competitive salaries and bonuses. After covering all expenses, taxes, and interest, the remaining profit represents the funds available to compensate owners for the risk capital they have invested in the company.