Selling a Small or Medium sized Enterprise (SME) is a milestone that often represents decades of hard work and personal sacrifice. For founder owners, it’s not only a financial decision, but also the culmination of their entrepreneurial journey.
A successful exit, however, doesn’t depend solely on the company’s value. It depends on how well the seller anticipates, understands, and meets buyer expectations at every stage of the deal: before taking the opportunity to market, during negotiation, and post-closing.
Whether your potential acquirer is a corporate strategic, private equity fund, or management team, the principles are the same: buyers seek low risk, high return opportunities. Sellers who prepare with these expectations in mind tend to achieve higher valuations, faster closings, and smoother transitions.
Before Taking the Opportunity to Market: Preparation is Protection
The groundwork you lay before engaging the market determines your credibility and pricing power. Buyers don’t want to “fix” a business; they want a sale ready opportunity with clean data and minimized surprises.
Financial Credibility and Clarity
- Clean and Audited Financials: Buyers expect more than management accounts. Ideally, provide 3 to 5 years of clean, standardized, and audited financial statements, including Profit & Loss, Balance Sheet, and Cash Flow. Poor bookkeeping or inconsistent reporting is an immediate red flag that leads to valuation discounts or extended due diligence.
- Quality of Earnings: Expect buyers to focus on sustainable cash flow. They’ll scrutinize every “addback” (personal or one-off expenses) and look for evidence of recurring revenue and diversified customer bases. Clear, defensible adjustments to EBITDA go a long way in building trust.
- Realistic, Data-Driven Forecasts: Buyers are purchasing the future, not just the past. Provide a bottom up, well documented 3–5 years forecast based on tangible drivers: sales pipeline, capacity, and market data. Avoid overoptimistic assumptions; credible, defensible projections inspire confidence and justify value.
Business Resilience and Maturity
A mature, resilient business attracts more sophisticated buyers and commands a premium. They look for strength across core dimensions:
- Products and Services: Defined market fit, differentiation, and defensible niches.
- Brand and IP: Protected intellectual property and a brand that can survive an ownership change.
- Operations: Documented SOPs, digitized systems, and clear delegation that prove the business can run without the founder’s daily oversight.
- Clients: A diversified, loyal customer base with long-term contracts and low churn.
Conduct reverse due diligence before going to market. Fix lapsed contracts, clean corporate governance, ensure IP ownership, and resolve pending disputes. Proactive preparation prevents late stage “price chipping” and signals professionalism.
Valuation and Narrative
A fair and defensible valuation matters more than an aspirational one. Buyers expect pricing grounded in market data: comparable transactions, sector multiples, and performance metrics. Support your asking price with evidence, not emotion.
Your Information Memorandum (IM) should tell a coherent story: what the company does, how it makes money, its growth potential, and why it’s an attractive acquisition. That story, backed by transparent numbers and facts, drives serious buyer interest.
During the Negotiation: Managing Risk and Building Trust
Once you have interested buyers, negotiations are no longer just about price — they’re about risk allocation. The structure of the deal determines how much of that risk each party retains.
People and Transition Risk
For most SMEs, human capital is the true value driver. Buyers will zero in on:
- Key People: Nonowner employees critical to operations, sales, or technical execution. Expect buyers to require retention plans (stay bonuses, new contracts) to protect continuity.
- Seller’s Transition Role: Few buyers want an abrupt exit. A stay post-acquisition period (often 6–18 months) allows for client handovers and operational integration. Negotiate a clear, timebound scope with defined responsibilities and compensation.
Deal Structure and Financial Mechanics
- Working Capital: Buyers expect a normalized level of working capital to remain in the business at closing. Understand how it’s calculated and negotiate adjustments early to avoid surprises.
- Earnouts: Used to bridge valuation gaps and align incentives. Define measurable, auditable KPIs (EBITDA, revenue, customer retention) and agree on reporting frequency to avoid future disputes.
- Retaining a Minority Stake or Rollover Equity: Consider keeping a minority share, typically through a rollover of 5–10% of the sale proceeds into the new ownership structure. This signals continued belief in the company’s future and alignment with the buyer’s growth ambitions. It also gives the seller a potential “second bite of the apple” when the buyer executes a future exit or liquidity event. For private equity buyers in particular, this rollover is often viewed as a sign of confidence and can even help close valuation gaps.
- Transparency: Above all, buyers expect honesty. Concealing issues almost always backfires during due diligence. Full disclosure builds trust and keeps deals alive.
Legal Terms and Protections
Buyers will negotiate representations, warranties, and indemnities to protect against unknown risks. Sellers should aim to cap liability, limit duration, and where possible, use warranty & indemnity insurance.
Post Closing: Delivering on Commitments and Preserving Value
Closing the deal is not the finish line. Your conduct after signing directly impacts your earnout and professional reputation.
Execute the Transition
Buyers expect you to actively support the transition — introducing new owners to key customers, ensuring operational handovers, and mentoring successors. A well-executed 90-day transition plan significantly derisks integration and protects your deferred payments.
Honor Reps and Warranties
Your representations and warranties (R&W) are legal promises about the state of the business. Expect a portion of proceeds to be held for 12–24 months.
Cooperate on Earn outs
If your deal includes an earnout, align your post sale activities with performance targets. Stay informed about how metrics are tracked and documented. Maintain professionalism and open communication with the buyer to minimize disputes.
Professional Disengagement
When your contractual obligations end, disengage gracefully. Honour non-compete and non-solicitation clauses and let the new leadership execute its vision. Professional exits build long-term reputation and open future opportunities: as an advisor, investor, or board member.
Buyers reward preparation, transparency, and predictability. For sellers, that means investing early in financial housekeeping, operational maturity, and people continuity.
At Advisory34, we often remind founders: “Preparation is not about selling faster; it’s about selling better.” When you present a well-prepared, professionally packaged business, you don’t just meet buyer expectations, but you control the narrative, protect your valuation, and secure the legacy you’ve built.
