Selling a business is one of the most significant financial events – and personal milestones – in an owner’s life. However, despite the high stakes, many entrepreneurs enter the sale process late, underprepared and lacking a real understanding of what actually drives value.
With over 30 years’ experience in advising on transactions ranging from £1m to £250m, Darren Hodson, Corporate Finance Partner at PKF Smith Cooper, has noticed that many business owners make the same critical mistake: they underestimate the importance of preparation.
“Most business owners don’t really start preparing until they are already set on selling, and, by that point, a lot of the opportunities for creating value have already been lost,” Darren comments.
The result is often businesses selling for less than their potential and deals that could have delivered substantially higher returns.
But what exactly differentiates a good exit from a great one? The answer lies in how early you plan, how effectively you prepare and how clearly you understand what buyers are really looking for.
The exit matrix: nine steps to maximising value
A successful exit relies on a clear, structured approach to preparation. Central to Darren’s strategy is a nine-step, structured framework, which he refers to as the ‘exit matrix’. It is designed to guide business owners through the key decisions and considerations ahead of a sale.
The principle behind it is simple: value does not suddenly materialise at the point of sale, it is built over time.
“Too many owners treat the sale itself as the main event, when in reality the real work – and building value – takes place years before.”
Ideally, preparation should begin two to five years in advance, giving owners ample opportunity to strengthen operations, improve financial performance and resolve issues that could reduce buyer confidence.
Make it easy: the central driver of premium outcomes
Of all the factors influencing a sale, one of the most important principles is the concept of ‘making it easy’ for a buyer. This is more than simply presenting strong financials, it means removing friction.
“At the end of the day, buyers are human. If something looks like it’s going to cause problems from the beginning, they will start asking themselves whether they want to deal with it at all,” Darren says.
Buyers are not looking for projects, they are looking for businesses they can integrate, scale and grow, without needing to fix any fundamental issues in the process.
Put simply, the easier your business is to acquire then the more valuable it may become. “And the more effort the buyer believes they will have to put in after the deal, the less attractive your business becomes,” Darren explains.
Reducing friction in preparation for sale typically involves:
- Clean financial records
- A clear legal structure
- Resolved disputes or risks
- Reliable operational processes
- Accessible, well-organised data
Even relatively minor issues, such as unresolved litigation, undocumented agreements and inconsistent reporting, can create hesitation. In a competitive deal environment, this buyer hesitation can quickly lead to lower offers or lost appetite.
Management dependency: the hidden risk that undermines deals
One of the most common and costly issues that occurs during transactions is over-reliance on the business owner.
While founders often pride themselves on being the driving force behind their business’ success, buyers view things differently and see potential risk.
“If a buyer has to replace the owner or build the management team themselves, that immediately poses a problem and it usually impacts price and deal terms,” Darren notes.
If a business appears too dependent on one individual, several challenges can arise:
- Buyers may question whether positive performance is sustainable
- The seller may be asked to remain at the business for longer than desired
- Buyers may defer part of the purchase price (earn-outs)
- In some cases, a buyer may walk away from the deal entirely.
This makes investing in a capable, autonomous management team ahead of sale important.
While it may seem counter-intuitive to strengthen leadership when preparing to exit, it often has a direct impact on both valuation and exit options. A strong management team protects value and presents new exit routes, such as management buyouts or private equity investment.
The reality of valuation: more than profitability
Many business owners are surprised by initial valuation discussions. They expect value to reflect brand, reputation, customer relationships and the years of personal effort put into the business.
“Business owners often focus on what they have built from an emotional perspective, but buyers are ultimately focused on what your business can deliver financially,” Darren says.
While these elements do matter, the reality is that most businesses are valued primarily on a multiple of EBITDA, which makes two things critically important: sustainable profitability and confidence in future earnings.
However, value is not just about maximising profit in isolation. Buyers will also analyse recurring revenues, contracted income streams, customer concentration, margin consistency and growth trajectory.
In some cases, even unusually high margins may raise concerns as they can appear unsustainable.
The solution is balance. A business that is profitable, well-invested and positioned for scalable growth is more attractive than one that is either underperforming or has been artificially optimised.
Timing matters
Timing is one of the most misunderstood aspects of selling a business. Some owners delay their decision, waiting for a better offer or that more elusive ‘perfect’ moment to sell. Ultimately, many come to find they waited too long.
“We regularly see owners wait for a better offer that never comes – in the meantime, market conditions or business performance moves against them,” Darren notes.
Market conditions and personal motivations change. Businesses may begin to plateau, or even decline, during extended waiting periods, resulting in reduced value.
At the same time, external factors (such as economic cycles, sector dynamics and investor appetite) are largely outside the owner’s control.
Choosing when to sell is therefore a balancing act between personal readiness, business performance and market conditions. Ensuring all three components are aligned is a challenge but failing to plan accordingly can be costly.
Lessons from a successful exit: Evac+Chair
While theoretical knowledge is essential to understanding the sale process, real world experience demonstrates how these principles can play out.
Gerard Wallace, a former multi-business owner, successfully exited manufacturing business Evac+Chair with Darren’s support, but the deal was not without its challenges.
During the transaction, various challenges emerged:
- Trademark complexity: unclear ownership across territories created uncertainty for buyers.
- Operational transformation: a major factory move required significant investment.
- External disruption: the COVID-19 pandemic caused a sudden drop in revenue.
- Structural dependency: as with many founder-led businesses, leadership transition risk needed to be addressed.
Comprehensive preparation and adaptability helped protect outcomes. Strategic decisions to invest in facilities, strengthen operations and address risks as they emerged made the business more attractive.
The experience taught Gerard a key lesson: buyers are not just assessing your business for what it is today, they are assessing how easy it will be to own tomorrow.
The reality of the deal process
Even with strong preparation, selling a business is rarely straightforward. A typical transaction can take between six to twelve months to complete and the process is often highly demanding.
“Running and selling a business at the same time is incredibly demanding. Without the right support, it can affect performance at the worst possible time,” Darren warns.
During this time, management attention is diverted and operational performance can be affected, as pressure increases and deal negotiations intensify.
A common mistake is underestimating how disruptive the deal process can be, particularly for owners who lack the right support. Without the right internal structure and external support from a deal advisor, the disruption can impact performance at the precise moment buyers are scrutinising the business most closely.
In conclusion: preparation fuels outcomes
There is no fail-proof formula for a successful exit. However, the best outcomes share the same characteristics:
- Early preparation
- Clear objectives
- Strong financials
- Capable management
- Clean, low-risk operations
“The businesses that command the highest value are not just well run – they are well prepared.”
Owners who commit the time and resource to prepare effectively not only improve their chances of selling, but maximise the value of everything they have built.
Preparing your business for sale?
Whether you are considering a sale now or in the future, the right preparation can materially change your outcome.
Understanding your value drivers, addressing risks early and building the right advisory team are all essential steps in turning a potential exit into a successful one.
Contact PKF Smith Cooper today for a confidential discussion about your business options with one of our deal advisory experts.
For more in-depth information on selling a business, download our business owners’ guide on how to prepare for sale below.
