The single most common error in seller preparation is treating reported EBITDA as the basis of valuation. It is not. The basis of valuation is normalised, sustainable, post-buyer-adjustment EBITDA — a number that is almost always lower than the one in your management accounts.
A buyer will adjust your EBITDA for: an arms-length salary for owner-operators, the removal of personal expenses run through the company, the cost of replacing depreciated capital equipment, and the cost of professionalising functions you have been running informally. By the time these adjustments are made, the multiple is being applied to a different number.
If your largest customer accounts for more than thirty percent of revenue, your valuation will take a noticeable discount — and there is nothing your advisor can do about it during a process. The fix has to happen years earlier. Diversify deliberately, even when it is uncomfortable.
Pull quote"The work that determines your sale price is the work you do five years before you sell."
A buyer is buying a company, not a job. If the company cannot run for two weeks without you, the buyer is buying a job — and they will pay accordingly, which is to say, very little.
Audit your own indispensability. If the answer to every operational question runs through you, you have work to do — and the work is not 'document the processes.' The work is to actually delegate them, then leave for a fortnight and see what breaks.
Buyers will want five years of clean financials. If yours are not clean — and they are very rarely clean in companies under twenty million in revenue — the cleaning project will take eighteen months on its own. Start now, even if you have no plans to sell.
Most sellers begin preparation eighteen months before the planned sale. The right moment to begin is closer to five years. The investments compound: a clean P&L attracts better advisors; better advisors attract better buyers; better buyers pay better prices.
The best preparation is invisible by the time it matters. The work that determines your sale price is the work you do five years before you sell.