If you are considering selling your business in the coming years, the decisions you make now will have a direct effect on how much you can receive and, in some cases, whether the sale will actually complete at all.
Most business owners assume that they can prepare for a sale in the few months after finding a buyer. However, this period is often when problems emerge. If your prospective buyer discovers undisclosed issues during due diligence, the valuation comes in lower than you expected, or key contracts cannot be transferred to the new owners, then your deal will likely stall or collapse altogether.
The reality is that buyers expect finances to be organised, with clear ownership structure, and for any ongoing disputes to have been resolved. If you are unable to demonstrate these things, you may find yourself having to negotiate the price down so the other party can compensate for risks — if they still want to buy the business at all.
Contrary to popular belief, preparing a business for sale is not all about making the company perfect. It is instead about removing the reasons for prospective buyers to say no or look to reduce the offer. Here are ten essential tips to consider leading up to selling your business.
Start Earlier Than You Think
Most business sales will take, on average, between 6-12 months from finding an interested buyer through to completion. However, it is recommended that the preparation work on your part should begin 12-24 months prior to even approaching the market.
Why the Long Timeline?
This long lead-time is recommended because some issues simply can’t be fixed quickly. For example, if your contracts of employment don’t include restrictive covenants, you aren’t able to simply add them to existing staff contracts without consideration (usually payment). Similarly, if your intellectual property is not properly registered, the application process can take months. Finally, if your accounts show any sign of inconsistency, you need at least a full financial year of clean records, as standard, in order to show the buyers
The owners who get the best prices are often those who began the planning process years before approaching buyers. This is because they will have had the appropriate time to fix problems, strengthen the management team, clean up the financials, and position the business for growth rather than general maintenance.
If you are aiming to prepare a business for sale, start now. Even if you don’t intend to sell for another two years.
Get Your Financial Records in Order
This may sound obvious, but most businesses do not have the level of financial clarity incoming buyers will expect.
What buyers actually look for:
- Three Years of Accounts: Management accounts that tell a consistent story of performance, trends, and realistic forecasts.
- Clean Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA): If you can’t clearly explain your EBITDA and how it was calculated, you will often struggle in negotiations.
- Separate Expenses: When buyers spot personal costs mixed into business accounts, they’ll factor this into their calculations — but it damages your valuation.
- Explanations for Anomalies: If gross profit margin dropped 5% last year, prospective buyers will want to know why.
The Tax Efficiency Trap:
Many owners run their business to minimise tax, rather than maximise reported profit. This process works all-fine-and-well until you begin the process of selling. After all, low reported profits mean low valuations.
So, if you are planning to sell within two years, consider whether it is worth reporting higher profits and paying more tax now in order to achieve a significantly higher sale price later. The calculation often favours this approach, but you will need to run the numbers with your accountant.
Understand Your Realistic Valuation
Business owners routinely overestimate what their business is worth. This, naturally, will create problems throughout the sale process.
How Businesses are Typically Valued:
For most SMEs, buyers determine value using a multiple of your EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation). In simple terms: they take your annual profit figure and multiply it by a number that reflects how attractive your business is.
The multiple you’ll receive depends on several factors: your sector, growth trajectory, recurring revenue, customer concentration, and crucially, how dependent the business is on you personally.
Examples of multiples include:
- Service Businesses With Owner Dependency: 2-4x EBITDA.
- Product Businesses With Recurring Revenue: 4-7x EBITDA.
- Tech or SaaS Businesses With Strong Growth: 7-15x EBITDA.
- Asset-Heavy Businesses: Often valued on net asset value rather than EBITDA.
Example: Your business makes £500,000 EBITDA annually. At a 4x multiple, that’s a £2 million valuation. But if £100,000 of that EBITDA comes from your personal efforts that a buyer can’t replicate, they’ll adjust it down to £400,000 EBITDA, equaling a £1.6 million valuation.
That’s a £400,000 difference based on owner dependency alone — and this is just one factor buyers will adjust for.
The solution? Get a professional valuation before you approach buyers. When a formal sale is involved, you don’t want a guess from your accountant. You need a proper valuation from somebody who understands your sector as well as recent comparable sales. This will cost money up-front, but it prevents you from either underpricing or overpricing.
Reduce Owner Dependency
If the business doesn’t function without you now, then it won’t be worth much to a buyer after a sale. This is why buyers are routinely asking: “if the current owner leaves, what happens to the firm?” and if the answer is that the business struggles, they will either insist you stay on for a period after completion (which you might not want to do if you are seeking a clean break to pursue other ventures or retire), or they will significantly reduce the price.
How to Reduce Dependency:
- Strengthen Management Team: Hire or promote a strong second-in-command at least 12 months before sale and entrust them with genuine responsibility.
- Document Systems & Processes: Create written procedures for critical operations, customer management, supplier relationships, and financial processes.
- Diversify Customer Relationships: If you’re the main point of contact for major customers, start transitioning them to other team members.
- Remove Yourself from Operations: Take a step back and see if the business continues performing. If it doesn’t, you’ve identified dependency issues you need to fix before sale.
This doesn’t mean you need to make yourself irrelevant in your own business or put your feet up — but you do need to demonstrate that the business can operate successfully without your daily involvement.
Clean Up Legal and Compliance Issues
Due diligence will expose every legal problem you have. Therefore, it’s better to fix them now rather than have to factor them in when negotiating price reductions later.
Common issues that often arise during sales and measures you can look to implement include:
Employment Contracts and HR
- Every Employee Needs a Written Employment Contract: Employees need an up-to-date contract that reflects their current role, salary, and working terms.
- Include Restrictive Covenants for Key Staff: Without restrictive covenants, employees are free to immediately leave and join competitors or even take customers. Without these, buyers worry about losing critical knowledge and relationships post-sale.
- Update Policies and Procedures: All policies and procedures will need to comply with current legislations. Outdated policies create a liability risk that buyers will need to consider.
- Resolve Ongoing Employment Disputes: Deal with any ongoing disputes before marketing the business. This includes tribunal claims and grievances that have been raised.
Contracts and Agreements
- Review Significant Customer Supplier Contracts: Change of control clauses can prove tricky to negotiate — and often give the other party unwanted leverage.
- Check If Contracts are Assignable: If any contracts explicitly prohibit assignment without consent, you must either get consent in advance or have a plan for novation.
- Ensure Tcs and Cs are Properly Incorporated: All terms for how you supply goods/services need to be in place and properly implemented.
Intellectual Property
- Register Trademarks: If you trade under a specific name or brand, register it as a trademark. This costs a few hundred pounds upfront but can significantly increase value for you and the buyer.
- Confirm Ownership of IP: If employees or contractors created designs, software, or content for your business, do you actually own it? Ensure you have written agreements assigning IP rights to the company.
- Check Domain Names and Social Media: Are these owned by the company or by you personally? Transfer them into company ownership before sale.
Regulatory Compliance
- Ensure Licences and Registrations are Current: Whatever documentation your business needs in order to operate legally must be up-to-date and transferable.
- Resolve HMRC Issues: Outstanding HMRC issues can kill deals. If you have disagreements with HMRC, get them settled before approaching buyers.
- Check Data Protection Compliance: Are you GDPR compliant? Do you have a privacy policy, proper consent mechanisms, and data processing agreements with suppliers?
Optimise Your Business Structure
The way your business is structured will affect both tax efficiency and buyer attractiveness. For example:
Property and Asset Ownership
Identify where assets actually sit. Is the property owned by the company, by you personally, or in a pension fund? Are key assets leased to the company or owned outright?
If valuable assets sit outside the trading company, buyers may struggle to acquire everything they need. Consider whether consolidating ownership into the company makes sense (though this has tax implications. It is vital you get specialist advice before moving any assets around).
Unusual Arrangements
Review any family or personal arrangements. Do relatives have unusual roles or contracts? Do you store personal items on company premises? Are you leasing things from companies you or family members control?
These aren’t necessarily issues per se, but they do need to be clearly documented and ideally unwound before sale. Buyers worry that special arrangements will change after completion or create disputes.
Company Structure
Consider whether your corporate structure makes sense for a sale. If you have multiple subsidiaries or complex group structures, it might be worth simplifying. Complex structures increase due diligence costs and can deter buyers.
Position for Growth, Not Just Maintenance
Buyers pay premium multiples for growth, not for stable businesses that maintain current performance.
- Demonstrate Growth Trajectory: If your financials show 5-10% annual growth over the past three years, you’ll command higher multiples than a flat business, even if absolute profits are similar.
- Have a Credible Growth Plan: Buyers want to see opportunities they can exploit, such as new products launching, expansion into adjacent markets, untapped customer segments, etc.
- Build Recurring Revenue: One-off project revenue is worth less than recurring revenue. Anything that creates predictable future revenue, such as subscriptions and retainers, will increase value.
- Diversify Customer Base: If your top customers represent 60% of revenue, that’s a high risk for buyers should one of these high-value customers leave.
Create a Virtual Data Room Early
During due diligence, buyers will request hundreds of documents. If you’re scrambling to find contracts, chase missing records, and explain gaps in documentation, you look disorganised and buyers lose confidence.
Set up a virtual data room 12 months before approaching buyers. This is simply an organised online folder structure containing all key documents:
- Three years of accounts and management reports.
- All employment contracts and HR documentation.
- Customer and supplier contracts.
- Property leases or ownership documents.
- Intellectual property registrations.
- Insurance policies.
- Licences and regulatory approvals.
- Shareholder agreements and company constitutional documents.
- Details of any litigation, disputes, or regulatory issues.
Organising this in advance serves two purposes: it speeds up due diligence dramatically (making buyers more confident), and it forces you to identify gaps in your documentation that you can fix before the sale process starts.
Maintain Performance During the Sale
One of the most common mistakes is taking your eye off the business once you’ve decided to sell. Sales discussions will consume enormous time, you will be in meetings with buyers, responding to due diligence questions, negotiating legal documents, etc., and if you are not careful, business performance will drop as a result.
The Problem: Most sale agreements include completion accounts or post-completion adjustments. If EBITDA falls between signing and completion, the buyer can adjust the purchase price down. A 10% drop in performance can cost you hundreds of thousands in purchase price reduction.
How to protect performance:
- Don’t let the sale distract from day-to-day operations.
- Delegate more to your management team (which also demonstrates they can run things).
- Keep sales and marketing activity normal. Don’t reduce spending in anticipation of exit.
- Continue making necessary capital investments.
- Don’t let staff quality slip or delay hiring because “we are selling anyway”.
Buyers are looking for a business that will continue performing after completion. If performance is declining when they’re conducting due diligence, they will likely assume it’s an indicator of underlying problems rather than just sale distraction.
Assemble Your Advisory Team Early
Selling a business isn’t a DIY project. You will need specialists, with corporate solicitors playing a central role alongside accountants with mergers and acquisition experience and potentially corporate finance advisers or brokers.
Don’t wait until you’ve found a buyer to instruct advisers. By then it’s often too late to fix the issues they identify.
The Role of Corporate Solicitors
Experienced corporate solicitors should be engaged 12-18 months before going to market. They can:
- Conduct a “dry run” due diligence to identify legal and structural issues before buyers discover them.
- Advise on deal structure (share sale vs asset sale) and the legal implications of each.
- Review and remedy problems with employment contracts, shareholder agreements, and commercial contracts.
- Ensure intellectual property is properly registered and owned by the company.
- Prepare documentation buyers will expect to see.
- Manage the legal aspects of the sale process, protecting you from post-completion liabilities.
- Work alongside your accountant and financial advisers to ensure all aspects align.
Your accountant will handle financial due diligence preparation and tax planning. Corporate finance advisers can help identify and approach potential buyers and manage negotiations. However, corporate solicitors are essential for identifying and resolving the legal issues that most commonly cause deals to fail or valuations to drop.
Common Questions
How long does preparing a business for sale actually take? For a business in reasonable shape: 12 months at least. If a company has more notable issues (poor financials, owner dependency, legal issues, etc,): 18-24 months. It’s important you don’t try to rush preparations as it is a common reason sales fail.
What if a buyer approaches me before I’m ready? It is important that you are honest about where you are in the process. A serious buyer will often be open to waiting 6-12 months if you are actively preparing for the sale and can demonstrate progress.
Should I use a business broker or corporate finance adviser? For a company worth under £1 million, brokers can be helpful for finding buyers. On potential sales worth £1-10 million, corporate financial advice can add significant value. Any company worth more than £10 million should consider corporate financial advisors essential.
How do I know if my business is actually saleable? There are three questions you should ask to determine if your business is ready for sale: 1) does the business generate consistent, documented profit? 2) Can it operate without your input? 3) Are revenues and customers diversified? If the answer to all three is yes, then your company can be considered salable. If not, you know where to focus preparation efforts first.
What’s the single biggest mistake sellers make? Overestimating the businesses value and mentally checking out before getting a realistic valuation. Owners can fixate on inflated figures, then either refuse reasonable offers causing performance issues, or accept poor deals because they’ve already mentally committed to selling. Get a professional evaluation early to avoid falling into this trap.
Understanding what your business is actually worth — not what you hope it is worth — allows you to make more informed decisions regarding timing and preparation.
Should I tell staff I’m planning to sell? It is generally not recommended to tell staff you intend to sell until you have a buyer committed under exclusivity and a deal is expected to complete. Announcing too early will create an uncertainty that can cause your best employees to consider their position. However, senior management may need to know sooner if they will need time to prepare.
What happens if the sale falls through after I’ve started preparing? Despite a disappointing end, it is important to remember that the preparation work still adds value — it did not go to waste. You will have cleaner finances, better documentation, stronger management, and reduced owner dependency as a result of the work done already — all of which will improve the business, regardless of whether you ultimately sell or not.
Why Preparation Actually Matters
When it comes to a sale, the difference between a well-prepared business and an unprepared one isn’t subtle — proper preparation can significantly increase your sale price and likelihood of completion.
Unprepared businesses face:
- Due diligence issues that reduce the offer price.
- Buyers walking away when problems emerge.
- Extended timelines that increase costs and risk.
- Warranty and indemnity negotiations that expose sellers to future liabilities.
- Completion price adjustments when performance drops.
Prepared businesses achieve:
- Multiple competing offers that drive the price up.
- Faster due diligence with fewer issues.
- Cleaner completion with minimal price adjustment.
- Better warranty and indemnity protection.
- Confident buyers who are less likely to renegotiate.
And critically: prepared businesses are more likely to complete. A significant proportion of business sales fail during due diligence, with inadequate preparation being a leading cause.
How WHN Solicitors Can Help
At WHN Solicitors, our corporate & commercial team takes a different approach. Rather than box-ticking exercises, we invest time understanding your business and commercial objectives. This means we can identify the specific legal and structural issues that could affect your value — and endeavour to fix them before buyers discover them.
We help business owners prepare for sale well before they approach buyers, advising on deal structure for tax efficiency and guiding you through the entire process from preparation through to completion. We work closely with your accountant and other advisers to ensure every aspect of the sale is aligned.
Whether you’re planning to sell next year or in five years, starting the preparation conversation now means you’ll be ready when the right opportunity emerges — and you’ll maximise what you receive for the business you’ve worked so hard to build.
To discuss preparing your business for sale, contact Paul Matthews on 0161 761 8075 or email paul.matthews@whnsolicitors.co.uk Alternatively, fill in the enquiry form on our contact page.
