SERIES: GETTING YOUR AGENCY READY TO SELL YOUR BUSINESS  |  PART 2

Most founders preparing to sell spend time polishing their profit and loss statement. They clean up categories, smooth out the presentation, and make sure the numbers look healthy on the page.

Here's the problem: that's not what buyers and lenders look at first.

Nicole Pereira learned this directly from an SBA lender while helping her husband acquire an agency. The conversation was clarifying and it changes how you need to think about financial preparation if you're planning to sell in the next few years.

The Document That Actually Matters: Your Tax Returns

"The P&L is nice… but what really matters for us as the lender is what's on the tax returns."

Your P&L (profit and loss statement) is a document you prepare yourself and it shows how you see your business. Your tax return shows what you were willing to swear to. Lenders trust the tax return more because it's harder to adjust, and because it reflects the decisions you made when real money was on the line.

Most agency owners spend years doing everything possible to minimize taxable income — running personal expenses through the business, paying themselves generously, writing off whatever they can. That's smart in the short term, but those same strategies backfire when you go to sell. If your returns show minimal profit year after year, a lender can't justify a large loan, and a serious buyer will discount their offer.

Nicole's advice is direct: if you're planning to sell in the next two to three years, start showing three solid years of profitable performance on your tax returns — even if it means paying more taxes in the short term. Think of those extra taxes as an investment in a higher exit price.

Why Three Years Is the Magic Number

Buyers want to see three years of consistent, profitable performance. Not one great year. Not a recent rebound after a rough patch. Three years of stable, predictable results that show the business isn't a fluke.

If you've been aggressively minimizing taxes for years, you're not disqualified from selling, but you need to start the clock now. Every clean year you add to your record makes your business more fundable and more attractive.

Not All Revenue Is Worth the Same

Beyond the raw profit numbers, buyers look closely at where your revenue comes from. The total amount matters less than how predictable it is.

Nicole recommends having at minimum two clearly labeled revenue buckets in your P&L:

  1. Recurring revenue — retainers, ongoing contracts, subscriptions. Money that comes in reliably every month without requiring a new sale.
  2. Project revenue — one-time engagements or short-term work. Revenue you have to actively win every cycle.

Recurring revenue creates a floor. A buyer can look at $60K/month in retainers on a $1,000,000/year agency and know that baseline will likely still be there next year. Project revenue offers no such certainty, it depends entirely on whether you keep winning new business.

A business with 80% recurring revenue commands a significantly higher multiple than one where every month starts at zero. This split is one of the most direct levers you have on your valuation.

The 50-30-20 Structure Buyers Recognize Immediately

Nicole recommends structuring your P&L in a way that any experienced buyer can read at a glance:

  • 50% goes toward cost of delivery — the people and tools that do the actual client work
  • 30% goes toward operating costs — overhead, admin, sales, and business infrastructure
  • 20% is profit — your EBITDA

When a buyer sees this structure, they instantly understand how the business works and what's driving the margin. It signals that you're running the business with financial intention, not just depositing whatever's left at the end of the month.

What Makes Buyers Confident

  • Consistent margins over 3+ years — not a spike followed by a drop
  • Revenue spread across multiple clients — no single client making up more than 20–25% of total revenue
  • A clear split between recurring and project income, with a strong recurring base
  • Clean, organized books an outside party can read without needing you to explain everything

What Makes Buyers Walk Away

  • The founder filling multiple critical roles with no one to replace them
  • New business coming entirely through the founder's personal relationships — no independent pipeline
  • Revenue or margins declining over the past 2–3 years
  • One or two clients making up the majority of revenue
  • Almost all work being project-based with little or no recurring income

Closing Thought

Buyers aren't looking for perfection, but predictability. Three years of clean tax returns, a clear recurring revenue base, and a P&L structured around the 50-30-20 framework will put you ahead of most sellers before the first conversation even starts.

Coming soon: The Agency Valuation Estimator

Want to see where your financials actually land? We're building the Agency Valuation Estimator — enter five financial figures and get an instant EBITDA-based valuation range in under two minutes.

Up next in Part 3: How the money actually changes hands and why the structure of your deal can matter as much as the price.

This four-part series is based on a conversation with Nicole Pereira, serial founder and three-time agency seller.