Published on
September 12, 2025
M&A Legal Checklist: Preparing Your Business to Sell
Learn essential steps to prepare your business for mergers and acquisitions. Expert advice on legal, financial, and operational readiness for a smooth sale.
Mergers and acquisitions (M&A) are pivotal moments for business owners, especially those managing mid-market companies generating $500K to $10M in annual revenue. The prospect of selling your business can be both exciting and daunting, with countless factors to consider and potential pitfalls along the way. To navigate this complex process, planning and preparation are crucial. In this article, we’ll break down expert insights shared by Michael Carr, M&A attorney at Perkins Coie, as discussed on the Unmitigated Podcast.
Whether you're looking to exit your business, attract private equity, or ensure a smooth transition for key employees, this guide will provide practical strategies to help you make informed decisions.
Why M&A Planning is Crucial for Business Owners
As a business owner, you’ve poured time, energy, and resources into building your company. When it comes time to sell, the stakes are high, and the success of the deal can depend on how well you’ve prepared. Michael Carr emphasizes that it’s never too early to start planning for an eventual sale - even if you’re years away from wanting to exit.
Why is this so important? First, potential buyers - especially private equity firms and strategic investors - will scrutinize every aspect of your business. Financials, legal compliance, operational systems, and even customer relationships are all under the magnifying glass. Second, preparation protects you from last-minute deal-breakers, improving your odds of closing successfully while maximizing your valuation.
The Building Blocks of a Successful M&A Deal
1. Start With Strong Financial Foundations
Financial readiness is non-negotiable. Buyers want to see accurate, well-organized financial statements that demonstrate a clear track record of profitability and cash flow. However, this is often a pain point for founders who prioritize operations and sales over back-office functions.
Carr highlights that poor financial organization can significantly complicate the sale process. Sophisticated buyers often conduct a quality of earnings (QoE) report to verify the numbers and uncover inconsistencies. If your financials are disorganized, buyers may either reduce their offer or walk away entirely.
Actionable Tips:
- Hire an experienced accountant familiar with M&A transactions to clean up your books.
- Maintain at least three years of clean, audited financial records.
- Consider separating personal expenses from business accounts to avoid inflating costs.
2. Address Legal and Operational Liabilities
Legal issues can derail even the most promising deals. Common red flags include missing corporate documents, unresolved disputes, or noncompliance with employment laws. Carr recounts a deal that fell apart because the seller employed undocumented workers - something the buyer couldn’t risk taking on.
Proactive Steps:
- Conduct a legal audit to identify and resolve potential issues.
- Organize critical documents like contracts, operating agreements, and intellectual property records.
- Implement systems to ensure ongoing compliance with labor, tax, and regulatory laws.
3. Understand the Buyer’s Perspective: Asset vs. Stock Sales
A key part of negotiating any M&A deal is deciding between an asset sale and a stock sale - two structures with significantly different implications for both parties.
- Asset Sales: Favorable to buyers because they allow them to "pick and choose" the assets they want while avoiding liabilities. Buyers also benefit from a step-up in tax basis, giving them depreciation advantages.
- Stock Sales: Preferred by sellers because they’re simpler and offer tax advantages. However, buyers often resist this structure due to the risk of inheriting existing liabilities.
Carr advises that the choice often comes down to negotiation and careful tax planning. Sellers should work with experienced M&A attorneys and tax advisors to evaluate their options.
Steps to Prepare Your Business for Sale
1. Assemble the Right Team
Selling a business is a team effort. Surround yourself with specialists who can guide you through every stage, including:
- M&A Attorneys: Ensure contracts are airtight and negotiations align with your goals.
- Accountants: Prepare financial statements, analyze tax implications, and support due diligence.
- Business Brokers or Investment Bankers: Help identify the right buyers and negotiate terms.
- Financial Advisors: Provide long-term planning for your post-sale life, including wealth management.
2. Organize for Due Diligence
Buyers will request a due diligence list - a comprehensive document detailing your company’s financials, legal framework, and operational data. Preparing for this ahead of time can save months of back-and-forth.
Key Areas to Focus On:
- Financial records (income statements, balance sheets, cash flow statements)
- Details of customer contracts and supplier agreements
- Employee records, benefits, and contracts
- Intellectual property (IP) ownership and trademarks
Carr recommends asking your attorney for a sample due diligence checklist and using it to keep your business organized year-round.
3. Ensure Continuity and Scalability
A common concern for buyers is whether the business can thrive without the original owner. If the founder is too integral to daily operations, the risk increases for the buyer. To combat this, work to make yourself "irrelevant" in the business by building scalable systems and delegating responsibilities to a strong management team.
Best Practices:
- Transition key customer relationships to other team members.
- Implement scalable processes for sales, marketing, and operations.
- Build a succession plan to ensure a smooth leadership transition.
Avoid Common M&A Pitfalls
Legal Issues
Ignoring known legal liabilities - like unresolved disputes or improper employee classifications - can stall or kill a deal during due diligence. Address these early to avoid surprises.
Overreliance on a Single Customer
If a large percentage of your revenue comes from one client, this concentration poses a risk to buyers. Diversify your customer base or mitigate this risk by securing long-term contracts with key clients.
Misaligned Valuations
Sellers often overestimate the value of their business, while buyers focus on tangible factors like cash flow. Tools like earnouts - where a portion of the purchase price is tied to future performance - can help bridge this gap.
Key Takeaways
- Start Early: Prepare to sell your business years in advance by organizing financials, addressing legal issues, and building a strong team.
- Focus on Financial Readiness: Clean, accurate financials are critical to attracting serious buyers.
- Understand Deal Structures: Learn the pros and cons of asset vs. stock sales and how they impact taxes and liabilities.
- Plan for Continuity: Build systems and a team that can sustain the business without your daily involvement.
- Hire Specialists: Work with M&A attorneys, accountants, and brokers who specialize in transactions like yours.
- Address Risks: Resolve legal liabilities, diversify your revenue streams, and mitigate customer concentration risks.
- Be Transparent: Full disclosure during due diligence protects both parties and fosters trust.
Final Thoughts
Selling a business is a significant milestone that requires careful preparation and expertise. By taking a proactive approach to financial organization, legal compliance, and operational continuity, you can maximize your business’s value and achieve a smooth transaction.
Whether selling to private equity, a strategic buyer, or even key employees, assembling the right team and planning ahead will set you up for success. As Michael Carr emphasizes, the value of due diligence and preparation cannot be overstated. The earlier you start, the better positioned you’ll be to negotiate favorable terms and secure the future you envision.
Source: "Mastering Mergers & Acquisitions: Legal Strategies for a Successful Deal" - SRA 831(b) Admin, YouTube, Aug 25, 2025 - https://www.youtube.com/watch?v=6iFKt7v9wpQ
Use: Embedded for reference. Brief quotes used for commentary/review.
