The Sale Starts Before the Business Goes to Market

I’ve never bought a forever home. That doesn’t mean I don’t settle in. It just means that, for me, there’s always been a plan from the day we moved in for the day we’d leave.

We’ve known what needed doing and what wouldn’t come back at sale. You don’t rip out something sound just because the latest finish is fashionable. You don’t ignore the roof because a buyer can’t see it from the road. Certificates, planning permissions, guarantees, invoices and photographs. All kept. All filed. When the enquiries come in, the conveyancing pack is already there.

I took the same approach when selling a business. The data room wasn’t built once a buyer appeared. We knew what they’d ask and worked backwards from it, years out rather than weeks.

A business sale doesn’t really begin when the business goes to market. By then, most of the value has already been built or lost.

There’s a pub in my town that’s been for sale for years. It’s a genuinely good pub. Busy, well run and the kind of place that should have sold within months. Locally, it’s widely understood that every serious conversation with an interested buyer stops at the same place.

Price.

The owner has a number in their head and it isn’t one anyone else recognises. Maybe it reflects the years they've put in. Maybe it’s what they believes the building and the business are worth together. Maybe it’s simply what the owner wants to walk away with.

But a buyer isn’t paying for the years you’ve worked. They’re paying for what the business can reliably produce next and the risk attached to producing it.

Those are two very different numbers.

It’s a harder market to get that wrong in too. UK deal volumes fell 12% last year, but total deal value still rose 12% and average deal size jumped 28%. Buyers haven’t disappeared.

They’ve become far more selective and the better-prepared businesses are taking a growing share of the capital still moving.

So Which Numbers Actually Matter?

Well, that depends on what you’ve built.

A recurring-revenue software business may be tested against the Rule of 40, with revenue growth and profit margin considered together rather than in isolation. A combined score above 40 is generally read as a sign that the balance is healthy, although the detail still matters. Fast growth can offset lower margins for a time and stronger profitability can make slower growth more acceptable, but neither should disguise a business with no credible route to sustainable returns.

In lease-heavy sectors such as hospitality, care and leisure, buyers may look at EBITDAR instead, adding rent back to separate how the operation performs from the property arrangement sitting underneath it.

The rent doesn’t disappear because it’s been added back on a spreadsheet. It still has to be paid and a serious buyer will price that in.

Many established trading businesses will be valued from maintainable EBITDA. Not necessarily the EBITDA shown in the year-end accounts. A buyer wants normalised earnings, what the business would produce once personal expenses, one-off costs and owner-specific arrangements are stripped back out.

We didn’t just know our profit figure. We knew which parts of it a buyer would challenge.

Did the strongest year lean on one outsized contract? Had maintenance quietly been delayed to flatter the numbers? Was last year’s ‘one-off’ the same cost that showed up every year under a different name?

An adjustment isn’t accepted simply because it’s been labelled an add-back. It needs evidence behind it.

What the Buyer Sees That you Don’t

Private equity asks a further question. Not just what the business earns now, but what it could earn under different ownership and what would make the next buyer pay more for it later.

That pulls management depth, cash conversion, customer concentration, scalable systems and the credibility of the growth plan into the same conversation as EBITDA.

Historic performance gets you into the room. A believable route to greater value is what keeps the conversation moving.

We knew our customer list wouldn’t be read as a list of names. It would be read as a concentration risk.

Would that revenue still arrive if you stepped back for three months? Is it contracted or does the customer have an easy way out? Does the price hold or does it get negotiated down every year?

A big customer can feel like a tailwind while you’re growing. At sale, it’s often the first headwind a buyer names.

We also knew the headline price and the amount arriving in the bank weren’t necessarily the same number.

A buyer expects the business to be delivered with a normal level of working capital. Enough stock, debtors and creditors to keep trading after completion. Run stock down, leave suppliers waiting or push customers to pay early just before a sale and an adjustment will follow.

The reference period matters too. It’s usually aligned with the same period used for the headline valuation and adjusted where anything unusual has distorted the position.

Underneath all of it, the same questions keep surfacing. How much revenue sits with one customer? Does the business run without you in the room? Can the numbers be explained by someone other than you?

Sold is Decided Years Before it’s Listed

None of this starts six weeks before going to market.

A year or two out, there are usually hard decisions to make. Reducing reliance on a customer that currently pays well. Hiring a senior person before the business quite feels ready for the cost. Replacing a system that still works but won’t carry the next stage. Walking away from revenue that looks good at the top of the accounts and contributes almost nothing at the bottom.

Some of those decisions make this year’s numbers look worse. They can also be what makes the business worth more.

Know which measures matter for your business. Know what your numbers would say when read by someone who isn’t you. Have the answers ready before anyone asks the question, in the same way I’ve learned to have the paperwork ready before anyone views the house.

The alternative is a sign in the window for three years and no idea why nobody who walks past ever comes in.

Sources: PwC, "Bigger bets, sharper choices", Bain & Company, Rule of 40 research, ICAEW, completion mechanisms guidance