Sell-Side Readiness: A Practical Checklist for Founders

Why preparation matters

A sale process is not the right time to discover that your management accounts use different revenue recognition policies in different years, that your largest customer contract has a change-of-control clause, or that two of your four directors have never signed employment contracts. Buyers will find all of these things. The question is whether they find them during due diligence — when you are in a strong position to address them — or after they have already made a conditional offer.

The following eight areas account for the majority of deal issues we see in mid-market transactions.

1. Financial quality

Buyers and their advisers will reconstruct your accounts from the bottom up. They will identify every non-recurring item, management charge, personal expense run through the business and accounting policy change. The reconstructed EBITDA they use will almost always differ from the number you have in mind.

The best preparation is to do this yourself first. Build a clear bridge from statutory EBITDA to adjusted EBITDA, document every add-back, and be prepared to defend each one with evidence. Buyers do not object to legitimate add-backs; they object to add-backs they cannot verify.

2. Working capital

A common and avoidable retrading trigger. If your working capital cycle has any unusual characteristics — seasonal peaks, large debtor balances, extended payment terms with key suppliers — these need to be explained and normalised before a process starts. The completion accounts mechanism in most deals is set by reference to a normalised working capital figure; arriving at that figure should not be a surprise.

3. Revenue quality and concentration

Buyers assess revenue quality on two dimensions: predictability and concentration. Recurring or contracted revenue commands a premium; project-based revenue that is re-won each year does not. If more than thirty percent of your revenue comes from a single customer, expect that to be reflected in price or in a retention mechanism in the deal structure.

Where possible, move to longer contract terms, renew key contracts before a process starts, and ensure your customer contracts are properly executed and filed.

4. Management team depth

Founder dependency is one of the most common reasons mid-market businesses fail to achieve the valuations they expect. If the business cannot demonstrably operate without the founder, buyers will price that risk — either in price or in earnout structure.

The practical steps are straightforward: promote a deputy, ensure key operational knowledge is documented, and make sure key relationships with customers, suppliers and staff are shared rather than founder-held. This takes time to establish credibly, which is why it needs to start well before a process.

5. Legal and regulatory housekeeping

Before a process starts, your legal advisers should review: employee contracts (especially for the senior team), customer and supplier contracts for change-of-control provisions, intellectual property ownership (particularly where software or proprietary systems are involved), any regulatory licences or permissions, and the company's constitutional documents.

Issues found during a buyer's legal due diligence take time to resolve. Issues resolved before a process starts are simply not issues.

6. Data room quality

A well-organised data room is not just an administrative convenience. It signals to a buyer that the business is run professionally and reduces the risk of deal fatigue during due diligence. The alternative — slow responses to information requests, missing documents, inconsistent records — creates anxiety in buyer deal teams and provides ammunition for renegotiation.

Start building your data room early. The core documents are largely standard: financial records for the last three years, management accounts, customer and supplier contracts, employee information, corporate documents, IP registrations, and insurance policies.

7. Tax structure

Most owner-managed businesses have accumulated some tax complexity over time — inter-company balances, historic structures that made sense at the time, or historic elections. None of these are necessarily problematic, but they need to be understood and explained.

Tax due diligence is now standard in all but the smallest transactions. Engaging a tax adviser to run a pre-sale tax review is one of the most consistently useful investments a seller can make.

8. Board and governance

Private equity buyers in particular will scrutinise governance. They want evidence of a functioning board, regular management information, and a business that makes decisions using data rather than instinct. If your business does not currently produce regular board-quality management information, start doing so at least a year before any process.

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This checklist is a starting point, not a comprehensive guide. The specific issues that matter for any particular business depend on its sector, structure and ownership history.

If you would like a candid assessment of where your business stands against these criteria, we are happy to have that conversation. Contact us via our contact page.