If you're thinking about selling your business in the next 12 months, you're already 18 months too late.
That's not hyperbole. Research from private equity exit analyses shows that businesses with structured 3-year exit preparation achieve valuations 35-40% higher than those pursuing opportunistic sales.
The inconvenient truth: maximising exit value requires destroying the business model that made you successful.
Let me explain.
Year 1: The Foundation Year (Months 1-12)
Months 1-3: The Brutal Audit
Begin with financial archaeology. Most owner-managed businesses have "optimization" baked into the P&L:
- Personal expenses run through the business- Family members on payroll for roles they don't really perform- Assets owned personally but used by the business (or vice versa)- Revenue recognition timing "managed" for tax efficiency
None of this survives due diligence.
Your first task: reconstruct financials as they would appear under new ownership. This "normalised EBITDA" becomes your valuation foundation.
The hard questions:- What's the real profit margin when all costs are properly allocated?- Which customer relationships are genuinely transferable vs. personally dependent?- What's the actual revenue trajectory when one-time windfalls are excluded?
Private equity firms call this "quality of earnings" analysis. Get ahead of it. Hire a transaction-experienced accountant to perform forensic reconstruction. Discovering you're worth 30% less than you thought in Month 3 is survivable. Discovering it in due diligence is catastrophic.
Months 4-6: De-Founder the Business
The greatest destroyer of value in SME exits: founder dependency.
If significant customer relationships, operational knowledge, or strategic direction lives exclusively in the founder's head, you don't have a business. You have a job. And jobs don't sell for 6-8x EBITDA.
The systematic approach:
Customer Relationship Transfer- Identify the top 20% of customers (who typically represent 80% of revenue)- Systematically introduce senior team members into these relationships- Document interaction history, preferences, buying patterns- Create transition protocols that survive your departure
Operational Knowledge Codification- Document every critical process as if training your replacement- Build decision-making frameworks that don't require your judgment- Identify the top 10 things "only you know" and make them transferable
Leadership Bench Development- Identify who would run the business without you- If that person doesn't exist, you have 18 months to hire and develop them- Consider bringing in a Managing Director while you transition to Chairman
The uncomfortable question: If you disappeared tomorrow, would the business survive 90 days? If the answer is no, your business isn't sellable at premium valuation.
Months 7-9: The Customer Concentration Problem
Here's a valuation killer: any customer representing >15% of revenue.
Buyer logic is simple: losing one customer post-acquisition could devastate returns. Therefore, customer concentration demands a valuation discount—typically 20-30% for each customer exceeding the 15% threshold.
Your options:1.Grow the base: Aggressive new customer acquisition to dilute concentration2.Restructure contracts: Break large customers into multiple contracts/entities3.Accept the discount: Recognise that your valuation ceiling is capped until this is fixed
The paradoxical reality: your biggest customer might be your biggest liability.
Months 10-12: The Recurring Revenue Imperative
Businesses with >30% recurring revenue command 40-60% valuation premiums over project-based models. The strategic question: can you transition business model before exit?
Examples:-Maintenance contracts on products sold-Subscription tiers for services previously sold as one-offs-Multi-year agreements with annual price escalators-Retainer models replacing hourly billing
Warning: This transition typically decreases short-term revenue while building long-term value. Start early enough that the new model has 12+ months of demonstrated performance before market.
Year 2: The Value Creation Year (Months 13-24)
Months 13-18: The Margin Expansion Programme
Acquirers buy EBITDA multiples. A business generating £5M EBITDA at 25% margin (£20M revenue) receives similar valuation to one generating £5M EBITDA at 20% margin (£25M revenue).
But which is easier to improve: growing revenue 25% or improving margin 5 percentage points?
For most businesses, margin expansion offers the faster path to value creation:
Strategic Price Increases- 3-5% annual increases for existing customers (most tolerate this)- Premium tiers for highest-value segments- Elimination of unprofitable "legacy" pricing
Cost Rationalization- Vendor consolidation (fewer suppliers = better terms)- Process automation (reduce variable cost per transaction)- Outsourcing non-core functions (convert fixed costs to variable)
The mathematics are compelling: improving EBITDA margin from 20% to 25% on £20M revenue creates £1M in additional enterprise value at a 6x multiple.
Months 19-21: The Balance Sheet Clean-Up
Buyers scrutinise asset quality with paranoid intensity:
Receivables Quality- Age receivables aggressively (anything >90 days is suspect)- Write off uncollectibles now (not during due diligence)- Demonstrate consistent DSO (days sales outstanding) trending downward
Inventory Optimization- Dispose of obsolete stock (it has zero value to buyers)- Demonstrate inventory turnover improvement- Right-size inventory to realistic demand forecasts
Fixed Asset Verification- Reconcile asset register to physical assets- Dispose of unused equipment- Update depreciation to match economic reality
The goal: a balance sheet that passes forensic scrutiny without restatement.
Months 22-24: The Contingent Liability Hunt
Buyers fear unknown liabilities above all else. Your task: surface every potential exposure before they do.
Common Hidden Liabilities:- Undefined employee contracts or termination terms- Environmental remediation requirements- Pending litigation (even if unmeritorious)- Regulatory compliance gaps- IP ownership uncertainties- Customer warranty obligations
Strategy: Hire pre-transaction legal counsel to conduct vendor due diligence on yourself. Identify issues, quantify exposure, and remediate or disclose. Surprises in due diligence destroy trust and valuations.
Year 3: The Marketing Year (Months 25-36)
Months 25-27: The Equity Story
You're not selling a business. You're selling a growth narrative.
Sophisticated buyers don't pay for past performance. They pay for future potential multiplied by execution probability.
Your equity story must answer:- What's the addressable market expansion opportunity?- Where are competitive moats defensible and widening?- What operational improvements could new ownership unlock?- How does this asset fit into broader industry consolidation?
This narrative requires evidence:- Market research demonstrating TAM (total addressable market) expansion- Product roadmap showing credible innovation pipeline- Customer validation of new offerings- Competitive analysis highlighting white space opportunities
Months 28-30: The Buyer Universe Mapping
Most business owners know 2-3 potential buyers. Sophisticated advisors identify 30-40.
Buyer categories:1.Strategic buyers (competitors, suppliers, customers seeking vertical integration)2.Financial buyers (private equity, family offices, search funds)3.International buyers (foreign entities seeking market entry)4.Management buyout (internal team, often with PE backing)
Each buyer type values different attributes:-Strategics pay for synergies and market position-Financials pay for cash flow predictability and scale potential-Internationals pay for market access and distribution-MBOs pay for continuity and cultural fit
Strategy: Develop targeted value propositions for each buyer type. The business has one set of assets; each buyer sees different value.
Months 31-33: The Dry Run
Before formal market entry, conduct a mock due diligence process:
- Populate a data room with every document buyers will request- Pressure-test financial projections with external validation- Rehearse management presentations with critical feedback- Identify and remediate every potential objection
Private equity professionals estimate that 60% of sale process time involves responding to information requests. Having documentation pre-prepared accelerates process and signals professionalism.
Months 34-36: The Market Process
With foundation laid, engage M&A advisors to:
1.Develop offering materials (CIM - Confidential Information Memorandum)2.Approach buyer universe systematically3.Manage competitive tension between multiple interested parties4.Negotiate structure (cash vs. equity, earnouts, employment agreements)5.Navigate due diligence efficiently
The hidden value in advisor selection: top-tier M&A advisors achieve 25-40% higher valuations not through better businesses, but through superior buyer psychology management.
The Uncomfortable Truths
Three-year exit preparation requires accepting painful realities:
You'll invest before you harvestProfessional management, systems implementation, legal cleanup—expect to invest 3-5% of revenue in exit preparation. This reduces current cash flow while building future value.
You'll sacrifice growth for qualityAggressive revenue expansion often masks operational weaknesses. The disciplined exit path prioritises margin improvement and operational excellence over top-line growth.
You'll delegate before you're readyDe-foundering requires releasing control before it feels comfortable. This creates short-term anxiety while building long-term value.
The Valuation Reality
Research across mid-market transactions demonstrates:
-12-month preparation: 0.8-1.2x industry median valuation-24-month preparation: 1.3-1.7x industry median valuation-36-month preparation: 1.8-2.4x industry median valuation
On a £5M EBITDA business at 6x median multiple, this represents:- Opportunistic sale: £24-36M (0.8-1.2x multiple)- Two-year preparation: £39-51M (1.3-1.7x multiple)- Three-year preparation: £54-72M (1.8-2.4x multiple)
The strategic question: Is 2-3 years of operational discipline worth £18-48M in incremental value?
For most owners, the answer is obvious. The execution, however, requires confronting uncomfortable truths about business quality, founder dependency, and operational maturity.
The businesses that achieve exceptional exits don't just plan the sale. They engineer the business to be worth buying at premium valuations.
The rest settle for what their business happens to be worth when they're ready to sell.