Seven things every business owner should think about before selling

I have worked with founders through more exit processes than I can count. The ones that go well, the ones where the founder walks away with significantly more than they expected and with their legacy intact, share a common thread.

They started preparing long before they needed to. Here are seven things I would want every founder thinking about exit to have worked through before the process begins.

1. Know what your business is actually worth today

Not what you think it should be worth. Not the number you need to retire comfortably. What a buyer would actually pay, in cash, today, based on what the business generates and what it would cost them to run it without you.

Most founders significantly overestimate their valuation because they are valuing their effort and their potential rather than what a buyer sees: maintainable earnings, free cash flow, risk and multiple. Understanding the real number and the gap between that and where you want to be, is the foundation of everything else.

2. Remove yourself from the critical path

This is the most common thing that destroys value in a sale process. A business where the founder is the product, where the key relationships belong to them personally, where decisions cannot be made without them, is not a business a buyer can acquire with confidence. It is a job with good margins. The process of removing yourself from the critical path takes time. Building a management team that can run without you. Documenting what lives in your head.

Transitioning client relationships to the business rather than to you personally. Start this earlier than feels necessary. It always takes longer than expected. 

3. Clean up your financials

A buyer’s due diligence team will go through your accounts in forensic detail. Anything that does not make sense, anything that looks like it conflates personal and business expenses, anything that suggests the reported profitability is not maintainable, will either kill the deal or reduce the price.

Get your management accounts current and reliable. Reconcile anything that needs reconciling. Understand your adjustments, the items that are genuinely non-recurring and can be added back to improve the EBITDA picture, and make sure they are defensible. Clean financials do not just make the process smoother. They command better multiples. 

4. Understand your tax position before you agree a number

The headline number is not what you walk away with. After capital gains tax, potentially after income tax on earn-out payments, after your advisors’ fees, the net proceeds can look very different from the gross figure agreed at heads of terms.

The tax structure of a transaction needs to be thought through well in advance of the sale, not negotiated at the last minute. Business Asset Disposal Relief, share versus asset sales, the treatment of any deferred consideration or earn-out: these are decisions that need to be made carefully and early. The difference between a well-structured and a poorly structured exit can be hundreds of thousands of pounds.

5. Know who your buyer is likely to be and what they value

Not all buyers are the same. A trade buyer from your sector values your client relationships, your team and your market position. A financial buyer, a private equity firm for example, values your earnings quality, your growth trajectory and your management team’s ability to execute without you.

An overseas buyer may value your UK market access above everything else. Understanding who is likely to want your business and why changes how you prepare it. You present different things, emphasise different metrics and structure the narrative differently depending on who is sitting across the table. 

6. Get your legal documentation in order

Due diligence on the legal side of a business is where deals slow down and sometimes fall apart. Contracts that are not properly executed. Shareholder agreements that have not kept pace with changes in the business. IP that is not clearly owned by the company. Employment arrangements that are not properly documented. A buyer’s lawyers will find these things.

Having them identified and resolved before you go to market puts you in a much stronger negotiating position and keeps the process moving at the pace you want. 

7. Have a plan for what comes next

This sounds personal rather than commercial. It is both. Founders who have not thought about what comes after the sale frequently have cold feet at the critical moment. The business has been their identity, their structure and their purpose for years or decades. The prospect of walking away, even for a life-changing sum, triggers something that rational analysis cannot always overcome.

I have seen deals fall away at the final stage because a founder was not emotionally ready, even when they were financially ready. Think about what the next chapter looks like before you start the process. Not in vague

terms. Specifically. What you will do with your time, how you will stay engaged and what the money makes possible. A founder who is genuinely excited about what comes next is a far more effective seller than one who is ambivalent.

Where to start

Take the Exit Readiness Checklist at zgrp.co.uk/exit-readiness-checklist before you start any sale process. It maps the ten most critical preparation points, rated by impact on your valuation, and gives you a clear picture of where to focus first.

For the legal side of your transaction, speak to Bill Cogan and the team at Seven Legal: sevenlegal.io