Chapter 02

Preparing a business for the market

Preparation decides how a business is received. Two companies with identical results can land very differently depending on how the story and the paperwork have been organised.

Normalising the figures

Owner-managed companies carry costs that a buyer will not inherit: a car that serves both purposes, a salary set for tax reasons rather than market reasons, one-off legal work, a family member on the payroll. Normalisation strips those out and shows what the business earns under ordinary management.

The adjustment has to be defensible. Every correction needs a line in the accounts behind it, because the buyer's adviser will test each one. Corrections that cannot be evidenced are usually the first thing to be reversed during due diligence, and reversals late in a process cost more than an honest starting point.

Separating private from company

A domain registered in a personal name, an advertising account run from a private login, stock held in a garage, a supplier agreement on a handshake. Each of these is small on its own and each of them is an obstacle at transfer.

The fix is administrative rather than clever: register what belongs to the company in the name of the company, move accounts to company addresses, and put verbal arrangements on paper with the counterparty before a buyer asks about them.

Reducing dependency

Buyers discount anything that walks out the door with the owner. That includes supplier relationships held by one person, a single channel producing most of the revenue, and processes that exist only as habits.

Reducing dependency does not mean rebuilding the company. It means writing down how orders are handled, giving a second person access to the important accounts, and, where possible, adding a second source for the products or traffic that carry the business.

What the file should contain

• Annual accounts for three years and a current interim statement
• A revenue breakdown by channel, product group and country
• Supplier and customer agreements, including the ones that were never signed
• Access to analytics and advertising accounts, with historic data intact
• An inventory list with age and turnover per group
• Registrations: domains, trademarks, licences, hosting

A file that is complete at the start shortens every stage that follows. It is also the cheapest form of negotiating strength, because a buyer who cannot find gaps has little to argue about.

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