Preparing a Business for Sale: The 12-Month Checklist

Preparing a business for sale means making the earnings you want credited provable to a stranger and to that stranger's lender. A buyer pays for earnings. A lender lends against earnings it can verify. Anything you cannot document does not get counted, and it does not get paid for.

Here is the mechanism an advisor walks you through on the first call. Many buyers of businesses in this size range finance with an SBA 7(a) loan. Under SOP 50 10 8.1, the lender tests debt service coverage of at least 1.25x on historical results, either the last fiscal year or a two-year average. Projections cannot be used to meet it. That means the twelve months before you go to market matter more than the pitch you write. If you clean up the books in the month you list the business, the last fiscal year still shows the old numbers.

Munera's published timeline gives the shape of the process. Active preparation takes 4 to 8 weeks. Marketing runs 2 to 4 months. The decision to a signed LOI takes 3 to 6 months. LOI to close runs 60 to 90 days, depending on financing and diligence. The work below fits around that timeline. Read the timeline answer if you want the full sequence.

The checklist, in order

1. Fix the financial statements first. Get monthly books closed on time, with tax returns that match the books. The lender wants a cash proof for the trailing twelve months and the last two fiscal years once a quality of earnings report applies, so the bank deposits, the books, and the returns have to tie.
2. Calculate SDE and document every add-back. SDE is net profit plus one owner's full compensation plus documented add-backs. Each add-back needs a receipt, a payroll record, or a contract. Read what a buyer will accept as an add-back before you build the schedule.
3. Run a market-rate salary for your replacement. EBITDA is SDE minus that salary. Lenders test coverage on EBITDA, so you need to know the number before a buyer's lender calculates it for you.
4. Fix or price the capital items. Aging vehicles, deferred maintenance, and worn equipment come off the price in diligence. They do not reduce SDE or EBITDA before the multiple. Decide now whether you repair them or accept a price adjustment.
5. Reduce owner dependence. Move customer relationships, key vendor contacts, and approvals to named employees. A buyer who has to replace you pays for that risk.
6. Paper the business. Collect contracts, leases, licenses, employee records, and customer concentration data into one folder. Check lease assignment terms and whether any contract needs a counterparty's consent.
7. Choose your structure and tax posture. Read the asset sale versus stock sale answer and talk to your CPA about goodwill and recapture before you see a term sheet.
8. Decide how you will go to market. A confidential process shares a blind profile only with buyers who have signed an NDA and been vetted. Employees and customers hear nothing until a buyer has qualified.

Start the first three items now, because they determine which fiscal year the lender will test and what it shows.

A buyer's SBA lender checks coverage, valuation, and equity, and each threshold below changes what you can negotiate. These rules took effect for loans numbered on or after October 1, 2026 under SOP 50 10 8.1.

Three of these deserve more explanation.

Valuation caps the debt. Total acquisition debt, meaning the SBA loan plus any seller debt not on full standby, cannot exceed the independent valuation. If the appraiser comes in below your price, the gap has to be funded by buyer equity or by debt on full standby. That is where price renegotiations begin.

The quality of earnings report resets your SDE. The lender must use the report's normalized earnings in the coverage calculation, not your schedule. Read what a quality of earnings report covers and consider ordering your own review first, so you see the problems before the buyer's vendor does.

A standby note is a real concession. Seller debt on full standby takes no principal or interest payments for the entire term of the 7(a) loan. Interest can accrue and be added to the balance, to be amortized after the SBA loan is paid in full. If you agree to one, you are lending money you will not see for the life of that loan.

The SBA rate ceiling also matters to your buyer's math. At the current prime rate of 7.00%, the variable maximum on a loan over $350,000 is 10.00%, so a buyer's actual rate sits at or below that ceiling.

Preparation on a $3,000,000 sale with $650,000 of SDE comes down to one question: how much of that SDE survives the quality of earnings report. The example below runs the lender's test using round, illustrative inputs. It does not apply a valuation multiple to anything.

Assumptions. Purchase price of $3,000,000, treated as the whole project cost for simplicity. SDE of $650,000. A replacement manager salary of $100,000, which is an illustrative input. A $60,000 add-back disallowance in the stress case, also an illustrative input. Financing is an SBA 7(a) loan with a 10% injection split 5% cash and 5% standby seller note, a 10-year amortization, and a 10.00% rate, which is the SBA ceiling at 7.00% prime for loans over $350,000. A real quote may come in lower.

The standby note is excluded from debt service, which is why the $150,000 does not appear in the $428,000. The SBA loan is $2,700,000 because $300,000 of the project is the 10% injection.

At exactly $3,000,000, the quality of earnings requirement applies. The cushion is thin: EBITDA of $550,000 against a need of about $535,000 leaves about $15,000. Now apply the stress case from the assumptions: the report disallows the illustrative $60,000 of add-backs because you cannot document them. SDE falls to $590,000 ($650,000 minus $60,000), EBITDA falls to $490,000 ($590,000 minus the $100,000 salary), and coverage drops to about 1.14x ($490,000 divided by $428,000). That is below the 1.25x floor, and projections cannot rescue it.

The buyer then has three levers: a lower price, a smaller loan with more cash, or a larger share of the price on standby. All three come out of your proceeds or your timeline. Documenting that $60,000 in advance protects the price. A deferred equipment item found in the same review is different. It comes off the price as a capital item and does not touch SDE or EBITDA.

Run your own inputs through the SBA loan calculator before you set a price expectation.

You negotiate price, structure, and risk allocation, and your negotiating position depends on how well your numbers survived verification. A seller with documented earnings and more than one qualified buyer has the upper hand on price. A buyer whose lender has an independent valuation in hand holds it on anything the appraisal touches.

• Standby note size. The rule allows up to half of the 10% injection as a full-standby seller note. Buyers will ask for the full amount. You can offer less, but then the buyer's cash requirement rises and the pool of qualified buyers narrows. Your strength here is a competing offer from a buyer with more cash.
• Appraisal gap. If the valuation comes in below price, the buyer has the stronger position unless you have a backup buyer. The gap is funded by equity or standby debt, so you choose between a lower price and a larger note. The seller financing guide explains how notes are structured.
• Working capital peg. The peg sets how much working capital stays in the business at close. A peg set from a clean trailing average favors you, and a peg set from a seasonal low favors the buyer. The working capital peg guide shows how the number moves the price.
• Earnouts. A buyer who doubts your earnings will offer to pay part of the price on future performance. You have the stronger position when your documentation answers the doubt, because the buyer then has less reason to defer price.
• Non-compete and transition. Buyers want a non-compete and a handover period. These are cheap for you to give if you are leaving anyway, so trade them for price or note terms.

Preparation changes who holds each of these. Before you accept an LOI, ask the buyer in writing how the purchase will be financed, what the lender will require, and which items the lender will verify independently.

The mistakes that cost the most are the ones a buyer's diligence team finds before you do. Each one below is a general mechanic of how sales stall or reprice, not a pattern drawn from Munera's own deals.

• Add-backs without paper. A personal expense you ran through the business is an add-back only if you can prove it was personal and non-recurring. Without proof, the quality of earnings report removes it and your SDE falls.
• Cleaning up books too late. If the last fiscal year closes before your changes take effect, the lender tests the old numbers. Timing the cleanup against your fiscal year end is a planning decision, and a late fix does not count.
• Treating capital items as earnings problems. Owners argue that a worn-out fleet should lower the multiple. It does not. A capital item is a price deduction, so you negotiate a dollar amount, not a changed SDE.
• Relying on projections. A buyer's SBA lender cannot use projections to meet the 1.25x floor. A forecast that shows next year's growth does not help if last year's results fall short.
• Hiding owner dependence. If customers call you personally, a buyer finds out in diligence and restructures the price toward an earnout or a larger note.
• Ordering your own valuation and expecting the lender to use it. The lender may not use a valuation prepared for you or the seller. Yours is useful to set expectations and nothing more.
• Telling employees early. A leak damages the business before a buyer has qualified. A blind profile and an NDA exist for this reason, and the employee transfer answer covers what happens to your team at close.

Fix the add-back schedule first, because it is the item that moves your coverage ratio and your price at the same time.

Next, build your SDE schedule, calculate your EBITDA with a replacement salary, and test it against the 1.25x floor before you talk to any buyer. That one exercise tells you whether to go to market now or hold for another fiscal year.

1. Pull the last two fiscal years and the trailing twelve months, and tie the books to the tax returns and bank deposits.
2. List every add-back with supporting paper, and drop any you cannot document.
3. Subtract a market-rate replacement salary to get EBITDA, then run the debt service test using the SBA loan calculator and the worksheet logic above.
4. Price your capital items separately and decide whether to repair or concede them.
5. Choose a route: a confidential process, or selling on your own. The answer on selling without a broker lays out what that takes.

On cost, Munera's published terms are these. If your business matches one of Munera's active buyer clients, the buyer pays the fee and you pay nothing. If Munera runs a confidential buyer search, the fee is a success fee paid at closing with no monthly retainer, and a $5,000 engagement deposit is credited against it at closing. Munera covers businesses with $1M to $30M in enterprise value. If you want the owner's guide from decision to close, read how to sell a business.

Send us your last two years of financials and your add-back schedule, and we will tell you which items a lender will count and which a quality of earnings report will remove.