The difference between a smooth sale at full price and a discounted, drawn-out one is usually decided before the buyer ever appears. Due diligence rewards companies whose records, contracts, and ownership are clean — and punishes the rest with price reductions, escrow holdbacks, and dead deals. Here is a month-by-month roadmap for preparing a California business for sale, starting roughly a year out.
Twelve months out: clean up ownership and records
Every deal begins with the buyer asking a deceptively simple question: who owns this company, exactly? Start here because these problems take the longest to fix:
- Corporate records. Bring the minute book current — formation documents, bylaws or operating agreement, board and shareholder consents, stock ledger. Ratify past actions that were never formally approved. Confirm the entity is in good standing with the Secretary of State and the Franchise Tax Board.
- Cap table. Reconcile every issuance, transfer, option, SAFE, and convertible note against signed documents. Undocumented equity promises to early employees or advisors surface in diligence at the worst possible moment.
- Consents and transfer restrictions. Identify shareholders or members whose approval a sale requires, and any rights of first refusal or drag-along provisions. If a minority owner could block or complicate a deal, you want to know now.
Nine months out: contracts and intellectual property
Buyers buy revenue, and revenue lives in contracts. Audit them with a buyer's eyes:
- Get key agreements signed and current. Handshake arrangements with major customers or suppliers should be papered. Expired agreements being performed month-to-month should be renewed.
- Map assignment and change-of-control clauses. In an asset sale, contracts generally cannot be assigned without consent if they say so — and many do. Even in a stock sale, change-of-control clauses can give customers an exit. Knowing which consents a deal will need shapes both structure and timeline.
- Own your IP on paper. Confirm every founder, employee, and contractor who created code, content, or inventions signed an assignment. Contractor-created IP is the classic gap: without a written assignment, the contractor may still own it. Register core trademarks and clean up any open-source license issues in your codebase.
Six months out: employment, compliance, and financial hygiene
- Worker classification. California's ABC test (Lab. Code § 2775) makes misclassified contractors a quantifiable liability that buyers will price into the deal — or demand a special indemnity for. Reclassify or restructure now, with counsel, rather than during diligence.
- Wage-and-hour exposure. Overtime practices, meal and rest breaks, expense reimbursement, and pay stub compliance are standard diligence items for California targets.
- Licenses and permits. Verify every business license, seller's permit, and industry license is current and correctly named. Lapsed licenses are cheap to fix now and embarrassing later.
- Financial statements. Move toward accrual-basis financials that will withstand a buyer's quality-of-earnings review. Separate personal expenses from the business, and document related-party arrangements at arm's length. If your revenue involves deferred components or subscriptions, get recognition right early.
- Litigation and disputes. Resolve what you can. Pending disputes do not necessarily kill deals, but surprises do — every claim should be disclosed and assessed before a buyer finds it.
Three months out: structure, team, and confidentiality
As you approach market, three workstreams converge:
- Deal structure. Asset sale versus stock sale drives tax outcomes, consent requirements, and liability allocation — sellers typically prefer stock sales for tax and simplicity, buyers prefer asset sales to pick liabilities selectively. Understand your after-tax proceeds under each structure before negotiating price, with your CPA and M&A counsel working together.
- The deal team. Line up M&A counsel, your accountant, and (for many businesses) a broker or investment banker. Decide which employees to bring inside and when, and consider retention arrangements for people the buyer will insist on keeping.
- Confidentiality discipline. Use NDAs before sharing anything, stage sensitive disclosures (customer names, pricing) for late diligence, and control the rumor risk with employees, customers, and competitors.
When the buyer appears: LOI discipline
The letter of intent is where sellers give away leverage. Although mostly nonbinding, the LOI fixes price expectations, exclusivity, and deal structure — and renegotiating any of it later is uphill. Never sign an LOI, or grant exclusivity, without counsel reviewing it. From there, diligence, the purchase agreement, disclosure schedules, and indemnification terms all move faster and cheaper because of the year of preparation behind you. That preparation is the core of the mergers and acquisitions work we do for sellers, often alongside ongoing corporate governance cleanup.
Talk to a California business attorney
If a sale is even on your two-year horizon, a readiness review now will surface the fixes that take the longest — while they are still cheap. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
