FOR DAVID GUDZIKOWSKI, founder of David & David Construction Co., the real heavy-lifting began when he started ruminating about retirement four years ago. To get his San Antonio general-contracting firm in shape to sell, he spent about a year cleaning up "odds and ends" before putting it on the market in 2004. "When it came time to make a presentation [in front of potential buyers], I had a clean balance sheet and all my clients lined up to extol," he says.

The company's current owner obviously appreciated his efforts. Gudzikowski, who also agreed to stay on though a one-year transition period, was able to reap 50% more than the company's book value from the sale. Two years later, the 68-year-old father of five and grandfather of eight continues to consult at the company for 20 to 50 hours each month. "I'm keeping my finger in the pie," he says.

Gudzikowski's story illustrates the careful planning needed when a company's founder prepares for the golden years. Unfortunately, too many entrepreneurs get bogged down by the day-to-day operations and fail to ready the business for their eventual departure. That lack of exit planning is an especially big problem when there's no obvious successor, such as children or other family members.

Stepping down isn't easy. But neglecting to prime the business for a new owner can result in a lower sales price and a prolonged stay on the job. Here are some tips for the retiring entrepreneur.

What to Expect

To be sure, readying a business for the auction block requires "far more than gathering your financial statements and giving buyers a look at the numbers," says Cathy J. Durham, a principal at Capital Valuation Group, a Madison, Wis., business-advisory firm. It may entail measures including: revising financial statements; renegotiating lease, vendor and employee agreements and paying all back taxes and other outstanding debts. You might need to spruce-up your company's overall operations and make costly repairs.

You'll also want to "give yourself enough time to resolve things that can cast a shadow" on your otherwise attractive business, says Kevin Hoult, a business advisor at the Small Business Development Center at Western Washington University in Bellingham, Wash. He recommends working within a three-year window to "resolve any outstanding payroll issues or write a big check to a vendor" if need be.

Business owners often defer to professionals—accountants, lawyers and business brokers who deal in the craft of whipping companies into shape—rather than divert too much of their working time to the task. These specialized professionals also are useful for keeping a sale quiet, says John F. Dini, a business broker in San Antonio. Sellers are usually "worried that their customers will leave in droves and their employees will all quit" once they find out the business is for sale, he says.

If you go this route, be prepared to pay. A professionally prepared "valuation"—that is, an estimate of your business's market value—can cost anywhere from $1,500 to $15,000, says Durham. To cut down on the cost of hiring the pros and thus, spare more of your funds for retirement, keep detailed financial data and begin planning years in advance.

Cleaning House

The preparation process calls for a fairly extensive bookkeeping session, say business advisors. Make sure all the company's financials are ready to be audited. And make sure records are ready for inspection by prospective buyers.

To do so, go back through at least three years' worth of your company's financial statements and add back in the value of various nonrecurring expenses. Say, for example, you have legal expenses that won't necessarily follow a new owner, "those need to be excluded," says Fentress Seagroves, a transactions-services partner with PricewaterhouseCoopers' Private Company Services practice in Atlanta. He recommends hiring an accountant familiar with business-sale adjustments for this process.

Other financial data that should be screened include: tax returns and employee and materials cost breakdowns. Also, "figure out how you break down the revenue" and be able to connect the dots for potential buyers, says Seagroves. If one unit at the company experienced particularly strong sales numbers, highlight it. Additionally, he says, "look at product, customer and geographic trends."

Other Considerations

Once you've put your business's financial and operational houses in order, it's time to place a value on the business. For the most accurate valuation, use the services of an accountant, a lawyer specializing in business transitions, an investment banker or a business appraiser.

After you've seen how much you can get for your business, you might decide not to sell. Perhaps, some issues, if repaired, may return more value in the future. "It takes time to implement systems changes," says Durham. It can take a small business about three to five years to turn around a culture or a couple years to fix a cash-flow problem, she says.

If you decide to proceed with a sale, tie up all other loose ends. Put verbal contracts with vendors and key employees in writing if you can. If you're worried about employees taking flight, make sure they sign noncompete or "retention" agreements, Dini advises. But practice caution, as asking employees to sign contracts might scare them away, he says.

Selling Memorandum

Develop a "selling memorandum," which is typically a 30- to 100-page booklet that details the business's financials, assets and potential for future growth. The memorandum essentially summarizes what you are offering prospective buyers. If buyers like what they see, they'll ask for more detail later.

But before you hand over any vital company information to a potential buyer who may also be a competitor, make sure you get a letter of intent and a confidentiality agreement, Dini says.

Decide on a Buyer

At this point, ask yourself: What do you hope to gain from a sale? Perhaps shoring up the most funds as possible for your retirement is your top priority. Or let's say you want to ensure that your business ends up in the optimal buyer's hands, not necessarily those of the highest bidder.

For his part, Gudzikowski was most concerned about finding a new owner who cared about the business as much as he did. Considering "the blood, sweat and tears that I put into the business and the clients that I cultivated, I didn't want to see the company go down the drain," he says. Not to mention, the current owner has another 18 months to go before paying off the balance from the sale. "Keeping the integrity and the profitability of the company up ultimately ensures that I am paid the amount of money I am owed," he says.