Why People Buy Existing Businesses In The First Place

Before you can prepare your business for sale, you need to understand how buyers think.

Most buyers who choose an existing business over a startup are looking for:

• A customer base they don’t have to build from scratch

• A revenue stream that’s already flowing

• Brand recognition and some kind of local or market presence

• A proven business model they can step into

Even if that business is not currently profitable, the model itself might be proven. Someone has shown that people will buy the product or service. Buyers look at that and think, “If I run it better, I can turn this around.”

But there’s another side to this.

A large percentage of businesses listed for sale are not performing well. Many are in negative cash flow. Some have messy financials, hidden issues, or owners who ran the business through their personal lives like a shared wallet.

On top of that, buyers aren’t just looking at the numbers. They’re also asking:

• Do I actually want to work in this industry?

• Do my skills add value here?

• Is there growth potential in this sector?

• Can I see myself still caring about this three years from now?

That’s why Joel always pushes buyers to choose something they genuinely care about. If you have zero interest in the business, you won’t pay attention to it, you’ll get bored, and eventually performance will slip.

If you’re on the selling side, this is a good reminder: you’re not just selling numbers. You’re selling a story about opportunity, lifestyle, and future potential.

Why Preparing Your Business for Sale Matters So Much

Here’s the harsh reality: preparation is not optional if you want a clean, profitable exit.

Too many owners wake up one day, call a broker, and say, “I want to list my business.” That’s like listing a house without fixing the roof, repainting, or packing any boxes.

Buyers pay for three things:

1. Systems

2. Stability

3. Clean financials

If those three pieces aren’t there, everything becomes harder:

• Financing becomes harder

• Negotiations drag on

• Trust erodes

• Deals fall apart at the due diligence stage

The ideal approach is to prepare your business for sale long before you actually list it. If you have the luxury of time, you should be thinking in terms of:

• 12 months out: planning and cleanup

• 6 months out: valuations, documentation, and packaging

• 3–6 months: active selling and negotiation

Even if you don’t have a full year, the mindset still applies: do as much prep work as you can before the first buyer sees anything.

Phase 1: Clean Up The Mess

Every business has a bit of chaos behind the scenes. When you decide to sell, that chaos becomes expensive.

Here’s where to start.

1. Get three years of clean financial statements

Buyers and banks will want to see:

• Income statements

• Balance sheets

• Tax returns

• Payroll records

If you haven’t filed taxes in a couple of years, or your internal financial statements don’t match your filed returns, that’s a problem. It doesn’t mean the business is bad, but it makes the deal messy and risky.

Clean, consistent financials are the foundation of your sale.

2. Be honest about your real sales

A lot of owners in certain industries still deal in cash and under-report sales. That might have benefitted you in the short term, but when it’s time to sell, buyers can’t pay for revenue you can’t prove.

If you’ve been reporting $500,000 in annual sales but you insist the “real” number is $900,000 with cash, the valuation will still be based on the $500,000. The extra money you’ve pocketed was your benefit while operating, not something you can monetize again at sale.

Trying to sell based on invisible revenue just destroys trust.

3. Remove personal expenses from the business

Many owners run personal expenses through the business:

• Car payments

• Cell phones

• Family travel

• Renovations on their own property

When you’re preparing your business for sale, you need to start pulling those out and recasting the business to show the true owner benefit.

A buyer wants to see:

• What the business actually earns

• What a realistic owner salary looks like

• What the operating expenses will be without all the personal add-ons

The cleaner that picture is, the more confident buyers will be.

4. Review your lease and legal position

Your lease can make or break a deal.

If you’ve got one year left and no renewal options, there may be nothing to sell. Most buyers and banks want to see either:

• At least 4 years left on the lease, or

• Shorter remaining term with one or more 5-year options

On top of that, you should:

• Make sure suppliers are paid up

• Resolve any outstanding disputes or claims

• Ensure business licenses are current and transferable

No buyer wants to step into hidden legal landmines.

Phase 2: Build Value Before You Sell

Once the mess is cleaned up, it’s time to deliberately boost the value of your business.

This doesn’t always require huge spending. It’s about smart, visible improvements.

1. Refresh the physical and digital presence

Small changes go a long way:

• Paint the interior

• Remove junk and clutter

• Replace broken or visibly worn fixtures

• Clean the exterior and signage

Online, you can:

• Post regularly on social media

• Encourage Google reviews

• Update your website and photos

Most of this costs very little, but it changes the first impression dramatically.

2. Document your systems and procedures

Buyers love systems.

Even simple checklists for:

• Opening and closing

• Daily cash handling

• Inventory management

• Customer service standards

…signal that the business doesn’t live solely in your head.

The more you can show that the business runs on process, not just personality, the more transferable it becomes.

3. Train your team to operate without you

If the business collapses the moment you stop showing up 10 hours a day, your value drops.

You want to be able to say:

• “I have key staff who can run day-to-day operations.”

• “If one person leaves, there’s a backup.”

That lowers risk for the buyer and makes the business feel like an asset, not a job they’re buying.

4. Track performance and understand your numbers

Joel recommends creating a simple sales binder or digital log that tracks:

• Daily/weekly sales

• Major events (short-staffed days, weather, promotions)

• Marketing activities and their impact

Over time, this helps you explain:

• Why certain days were bad

• Why certain months were strong

• How your decisions affected performance

This makes your business story more convincing and grounded in data, not just gut feelings.

Phase 3: Understand How Your Business Will Be Valued

You don’t need to become an accountant, but you do need to understand the basics of valuation.

1. EBITDA and multiples

Most businesses are valued using:

EBITDA × Industry Multiple

EBITDA is earnings before interest, taxes, depreciation, and amortization. Then you adjust for:

• Owner’s salary

• Personal expenses paid through the business

• One-time or non-recurring costs

Different industries have different typical multiples.

• Many restaurants might sit around 2.5–3.5× EBITDA

• Certain service businesses might see higher multiples (up to 4–5×)

These are ballpark figures, but they help frame expectations.

2. Asset-based valuation

If your business is equipment-heavy – for example, construction, manufacturing, or certain types of food production – an asset-based approach might be more relevant.

In that case, buyers and banks will look closely at:

• The current value of equipment

• Age and condition

• Remaining useful life

Banks like assets because they can be secured. A business with $250,000 in solid equipment is easier to finance than a purely service business with no tangible assets.

3. Recurring revenue and customer concentration

Recurring revenue is pure gold.

If you can demonstrate:

• Memberships or subscriptions

• Long-term contracts

• Clients who typically stay for multiple years

…your business becomes more attractive and less risky.

On the flip side, if a single client accounts for 60% of your revenue, that’s a red flag. Lose that customer, and everything changes.

Buyers will factor both of these into their risk assessment and the price they’re willing to pay.

4. Don’t overprice your business

One of the most common mistakes is setting a fantasy price because:

• You’ve worked in the business for 20 years

• You “need” a certain number to feel good

• You heard someone got a big multiple for a different business

The market does not care about emotional value.

It’s far better to:

• Price realistically from day one

• Decide your true walk-away number

• Avoid sitting on an overpriced listing for months, then dropping it later

An experienced broker or valuation expert can help anchor this.

Financing: What Buyers Are Up Against

When you’re preparing your business for sale, it helps to understand the buyer’s side of the financing equation.

Most buyers will look at:

• Bank loans or government-backed small business loans

• Personal savings or investors

• In some cases, vendor financing (you “hold paper” on part of the price)

Government-backed small business loans usually:

• Are amortized over 7–10 years

• Finance a percentage of hard assets and improvements, not goodwill

• Require a detailed business plan and clean financials

For existing businesses, the bank may only finance a portion of the purchase price. The rest has to come from buyer equity or a vendor take-back.

If you’re open to holding paper (financing part of the price yourself), you might:

• Attract more buyers

• Achieve a higher price

But you also take on risk. If the buyer defaults, you may have to step back in or write off part of the amount. It’s a tool, not a default strategy, and you should be comfortable with the worst-case scenario.

Why Using a Broker Can Make The Process Easier

Selling a business is a full-time project. Unfortunately, you already have one of those.

That’s why many owners choose to work with a broker. A good broker will:

• Price the business realistically, based on real-world deals and industry benchmarks

• Package the business professionally, so buyers understand the opportunity

• Screen buyers, so you’re not wasting time with people who can’t close

• Help maintain confidentiality where needed

• Coordinate with lawyers, accountants, and lenders

• Keep the deal moving and push for missing documents or decisions

They also act as a buffer, absorbing some of the emotion from negotiations. Owners are understandably attached to their businesses. That attachment can get in the way of rational decision-making.

Not all brokers operate the same way. Some will list anything at any price just to grow their inventory of businesses for sale. You want someone who will be bluntly honest with you about value and timelines.

Common Mistakes Owners Make When Preparing Their Business for Sale

After decades in the industry, the same patterns keep showing up:

• Waiting too long to plan the exit

• Letting performance slip once they’ve mentally checked out

• Hiding issues that later blow up in due diligence

• Not returning buyer or broker calls quickly

• Overpricing based on emotion rather than numbers

• Failing to clean up financials and documentation

The antidote is simple, but not always easy:

• Start early

• Run the business as if you’re keeping it

• Be honest about its strengths and weaknesses

• Get help from professionals who do this every day

Can Your Business Be Franchised Instead?

For some owners, selling the business once isn’t the only option. If the concept is strong and the unit economics work, franchising can be another path.

Turning your business into a franchise involves:

• Documented, repeatable systems

• Training programs

• Brand standards

• Legal franchise documentation

• A strategy for recruiting and supporting franchisees

Groups like Southbrook specialize in helping brands go from “one great location” to a scalable franchise system, often in clearly defined phases.

Franchising isn’t right for everyone, but if your business is performing well and you see market demand in multiple territories, it’s worth exploring before you finalize your exit strategy.

Final Thoughts: Start Preparing Long Before You’re Ready To Leave

Preparing your business for sale is not just about exit—it’s about running a stronger business today.

When you:

• Clean up your books

• Build systems

• Train your team

• Diversify your revenue

• Track performance

…you’re not just making the business more attractive to a buyer. You’re making it more profitable, more stable, and easier to manage right now.

Whether you plan to sell in 12 months or five years, the best time to start preparing your business for sale is before you feel desperate to exit.

Know your walk-away number. Get your financials in order. Fix the obvious problems. And, when you’re ready, surround yourself with professionals who can help you close the deal smoothly and confidently.