Preparing Your Business for Sale: The Finance Director’s 24-Month Due Diligence and Value-Improvement Plan
- Kimberley Lock ACCA
- Aug 13
- 23 min read
Preparing a business for sale should begin 18 to 24 months before you go to market, not in the weeks before due diligence starts. A buyer will not simply glance at your latest statutory accounts and make an offer. They will investigate the reliability and sustainability of future earnings, the strength of the balance sheet, the quality of financial controls, the durability of customer and supplier relationships, the depth of the management team beneath you, and whether the business can operate resiliently without your day-to-day involvement. Genuine preparation covers finance, tax, legal, commercial and operational readiness. Done well, it improves the offer you receive, protects the offer once due diligence begins, and reduces the risk of a deal collapsing or being repriced at completion.
Key facts for UK business owners (verified August 2026) • Business Asset Disposal Relief (BADR) applies a Capital Gains Tax rate of 18% on qualifying disposals from 6 April 2026 (HMRC). • BADR is subject to a £1 million lifetime limit on qualifying gains, unchanged since 11 March 2020 (HMRC helpsheet HS275). • Relevant conditions for BADR on shares in a non-EMI personal company must generally be met throughout a two-year qualifying period ending at disposal (HMRC). • A buyer can freely inspect your Companies House filing history, current and resigned officers, PSC information, mortgage charges and insolvency data through the Find and update company information service (Companies House guidance). • Financial due diligence typically evaluates quality of earnings, working capital, net debt, cash generation, forecasts, tax exposures and the reliability of management information (ICAEW Corporate Finance Faculty). |
What does preparing a business for sale actually mean?
Sale readiness is not the same as tidying files. It is a program of work that improves the business itself so that a buyer sees it as more predictable, more profitable and less risky. Assembling documents is a small part of that work. The bigger part is fixing the things a buyer would otherwise use to negotiate the price down.
Several activities sit inside sale readiness and it helps to name them clearly:
• Exit planning: deciding your objectives, timing and route to market (trade sale, private equity, management buyout, employee ownership trust) and shaping the business to fit that route.
• Value improvement: deliberate work on margins, recurring revenue, customer diversification, management depth and operational resilience so the business is genuinely worth more.
• Vendor preparation: cleaning up the financial records, controls, contracts and statutory registers so they stand up to inspection.
• Vendor assistance: accountants and lawyers helping the seller respond to buyer questions during the process.
• Vendor due diligence (VDD): a formal report commissioned by the seller (usually on larger transactions) and shared with prospective buyers.
• Buyer due diligence: the financial, tax, legal, commercial and operational investigation the buyer runs on the target.
• Transaction execution: negotiation, sale and purchase agreement, disclosure, completion mechanism and post-completion adjustments.
Not every SME needs a formal VDD report. Many mid-sized owner-managed businesses achieve strong outcomes with focused vendor preparation, a well-organised data room and clear seller-side scheduling of adjusted earnings. What every seller does need is time to make the business look the way it will need to look on the day the buyer arrives.
How buyers assess an SME
A buyer’s approach depends on their type (trade, private equity, management team, EOT) and on the sector, but the areas of investigation are broadly consistent. In an SME transaction, expect any competent buyer to probe:
• Historical financial performance: typically three years of statutory accounts plus current-year management accounts, reconciled to the trial balance and general ledger.
• Quality and sustainability of earnings: what proportion of profit is recurring, what is one-off, what depends on the current owner, and what would repeat under new ownership.
• Forecast credibility: whether the budget and three to five-year forecast can be reconciled to signed contracts, pipeline evidence, capacity and historical conversion rates.
• Cash generation: operating cash flow relative to reported profit, seasonality, and the working capital cycle.
• Working capital: debtor days, creditor days, stock or work-in-progress days, and whether current balances are typical or flattered by pre-sale management.
• Debt and debt-like liabilities: bank loans, invoice finance, asset finance, hire purchase, deferred consideration owed, dilapidations, unfunded pension deficits, unpaid taxes, accrued bonuses and holiday pay.
• Tax compliance: corporation tax, PAYE, VAT, IR35 exposure, R&D claims, capital allowances and any open enquiries.
• Customer concentration and contracted revenue: what proportion of revenue comes from the top three or top ten customers, and how much is contractually committed.
• Sales pipeline evidence: opportunities weighted by probability, conversion history and average sales cycle length.
• Project profitability, WIP and revenue recognition: particularly important in construction, engineering and installation businesses.
• Supplier dependency: single-source components, minimum order commitments and change-of-control clauses.
• Employees and management depth: key-person concentration, employment contracts, restrictive covenants, holiday balances and payroll accuracy.
• Systems and cybersecurity: ERP and finance system integrity, access controls, backup regime and any recent incidents.
• Intellectual property: registered and unregistered rights, ownership by the company (not the director), and any licence agreements.
• Regulatory compliance: sector-specific licences (gas, electrical, MCS, waste carrier, FCA, CQC, UKAS), permits, and product certifications.
• Litigation and contractual exposure: active and threatened disputes, warranty claims and guarantees given.
• Health, safety and environmental: accident record, RIDDOR reports, contaminated land, waste licensing, ISO status.
• Founder dependency: whether customers, suppliers, technical decisions and commercial judgement genuinely sit with the wider team.
• Documented processes and controls: SOPs, delegated authorities, segregation of duties and evidence that the business runs on process rather than personality.
This last point is worth dwelling on. Businesses that have invested in process development and automation typically move through due diligence faster, because the evidence a buyer needs already exists in a documented, repeatable form rather than in the owner’s head.
For manufacturing, construction, energy, retail, logistics and project-led service businesses, the areas that most often cause repricing are working capital, project profitability, customer concentration and founder dependency. These are all fixable given time.
Clean, audit-ready statutory accounts are the foundation everything else in this list is checked against. If your year-end accounts and audit preparation process is already slow or reactive, that is usually the first place to start.
Understanding the price: enterprise value versus what you receive
The number a buyer offers is almost never the number that lands in your bank account. Understanding how a headline moves to net proceeds is one of the most important things an owner can learn early.
The core concepts
• Enterprise value (EV): the value of the trading business, independent of how it is financed. In SME transactions this is usually expressed as a multiple of maintainable EBITDA, but valuation methods vary by sector, size, growth profile and buyer type. The ICAEW’s Business and share valuation guide is a good primer.
• Equity value: what the shareholders receive. It is derived from enterprise value by adjusting for cash, debt, debt-like items and normalised working capital.
• Cash-free, debt-free (CFDF): the standard SME transaction premise. The buyer assumes the business is delivered with no cash and no debt, then adds back surplus cash and deducts debt and debt-like items.
• Normalised working capital: the level of net working capital the business needs to trade normally, usually calculated as an average of the last 12 to 18 months. If actual working capital at completion is below the target, the price reduces by the shortfall.
• Debt-like items: liabilities that behave like debt even if not shown as such. Common examples include unpaid corporation tax, VAT balances, deferred consideration on a prior acquisition, accrued bonuses, holiday pay accruals, dilapidations provisions, unfunded pension liabilities, customer deposits and overdrawn director loan accounts.
• Transaction expenses: legal, corporate finance, tax and financial due diligence fees, all of which come out of proceeds.
• Deferred consideration, earn-outs and retentions: portions of the price paid later, contingent on future performance (earn-out), the passage of time (deferred) or the absence of warranty claims (retention or escrow). The ICAEW’s Earn-Out Agreements guideline explains the mechanics and common pitfalls.
Hypothetical worked example
The figures below are illustrative only. They do not represent typical multiples, sector norms or any actual client.
Bridge from enterprise value to net cash at completion | Amount | Notes |
Agreed enterprise value | £8,000,000 | Headline offer |
Add: surplus cash on completion accounts | +£500,000 | Cash above operational need |
Less: bank and asset finance debt | –£1,200,000 | Term loan and HP balances |
Less: debt-like items | –£300,000 | Corporation tax, accrued bonuses, holiday pay |
Less: working capital shortfall vs target | –£150,000 | Delivered below the normalised level |
Less: transaction expenses (sell side) | –£250,000 | Corporate finance, legal, tax, FDD |
Estimated equity value pre-deferral | £6,600,000 | Before splitting into upfront and deferred |
Less: deferred consideration (24 months) | –£1,000,000 | Payable in equal instalments |
Less: earn-out (contingent on Year 1 and Year 2 EBITDA) | –£500,000 | At risk if targets missed |
Cash received at completion (pre-tax) | £5,100,000 | Before personal tax |
A headline of £8m in this example converts to £5.1m of cash on the day the transaction completes, with a further £1.5m payable over time and at risk of being reduced. The precise treatment of each line, including which liabilities count as debt-like and how the working capital target is set, is a matter for negotiation and specialist advice. The ICAEW’s Completion Mechanisms guideline sets out the alternatives (locked box, completion accounts and hybrid mechanisms) and is worth reading before you start negotiations.
Quality of earnings and adjusted EBITDA
Buyers do not price a business on last year’s reported profit. They price it on the earnings they believe will continue under new ownership. That figure is often called maintainable EBITDA, and it is arrived at by adjusting reported EBITDA for items that a new owner would not experience.
A credible adjusted EBITDA schedule improves the offer. An aggressive or poorly evidenced one has the opposite effect: it damages buyer confidence in every other number you produce.
Common adjustments
• Owner remuneration adjustments: if the owner pays themselves above (or below) market rate, EBITDA is normalised to what a market-rate manager would cost.
• Related-party transactions: rent paid to a director-owned property company or fees to a connected business are restated at market rate.
• One-off costs: genuinely non-recurring items (a restructuring, a one-off legal case, a bad-debt hit from a single customer) are added back with supporting evidence.
• One-off income: grants, insurance recoveries, gains on asset sales and pandemic-era support are stripped out.
• Accounting policy changes: any restatement is disclosed and explained (revenue recognition, capitalisation policy, stock provisioning).
• Revenue cut-off and WIP: particularly in project businesses, revenue and cost recognition is tested against percentage-of-completion or milestone-based methods.
• Recurring vs non-recurring revenue: a schedule that separates contracted, repeat and one-off revenue is far more persuasive than a blanket assumption.
Hypothetical EBITDA reconciliation
Illustrative only. Every adjustment must be supported by evidence a buyer can independently verify.
Reported EBITDA to adjusted EBITDA | Amount | Evidence to hold in the data room |
Reported EBITDA (from audited accounts) | £1,500,000 | Tie to statutory accounts |
Add: owner remuneration above market rate | +£100,000 | Benchmark from recruitment data |
Add: one-off restructuring costs (site closure) | +£75,000 | Redundancy calculations, invoices |
Add: related-party rent above open-market level | +£40,000 | Valuation report or comparable rent |
Less: non-recurring insurance recovery | –£30,000 | Insurer settlement letter |
Less: one-off R&D grant income | –£20,000 | Grant award letter |
Add: normalise marketing spend from launch year | +£25,000 | Marketing plan and prior-year run rate |
Adjusted (maintainable) EBITDA | £1,690,000 | Bridging schedule with source notes |
The multiple applied to that number depends on sector, size, growth, risk profile, recurring revenue, customer concentration, working capital intensity and prevailing market conditions. Any single “average multiple” you see in a marketing article should be treated with caution. Ask the source how the sample was constructed, when it was published and whether it matches your sector, size and profile.
The 24-month preparation plan
The table below sets out a staged plan. It is a template, not a prescription. The right pace depends on the size and complexity of the business, the readiness of the finance function and the owner’s objectives. Some owners run the whole program in 12 months; others take 30. The point is that the work happens before the buyer arrives, not during due diligence.
Phase 1: 18 to 24 months before sale – diagnose and plan
Area | Actions | Evidence produced |
Objectives | Agree owner objectives, likely sale route, timing and price expectations. | Written exit brief; discussions with corporate finance and tax advisers. |
Diagnostic | Financial and operational gap analysis; sale-readiness scorecard (see below). | Gap analysis report; prioritised action list. |
Structure and tax | Review corporate structure, share ownership, group arrangements and BADR eligibility. | Structure paper; tax adviser confirmation of relief position. |
Accounting records | Correct any historical errors; standardise chart of accounts; document policies. | Restated management accounts; accounting policy manual. |
Reporting | Establish monthly management reporting pack with P&L, balance sheet, cash and KPIs. | Board pack template; 3–4 months of consistent packs. |
Owner dependency | Identify tasks that only the owner does; begin transferring them. | Delegation register; recruitment plan for gaps. |
Risk if ignored: later work builds on shaky foundations. Errors in Phase 1 are found by the buyer instead of by you.
Phase 2: 12 to 18 months before sale – strengthen
Area | Actions | Evidence produced |
Controls | Segregation of duties, delegated authority matrix, approval workflows, monthly balance sheet reconciliations. | Signed reconciliations; internal controls document. |
Forecasting | Integrated three-statement forecast; monthly reforecast; assumptions documented. | Model with clear input/output separation; variance analysis. |
Margin work | Address poor-margin products, contracts or customers; commercial pricing review. | Product/customer profitability schedule; action plan. |
Working capital | Improve debtor days, stock turn and creditor management; agree new terms with slow-paying customers. | Debtor days trend; ageing analysis; credit control notes. |
Intercompany and director balances | Reconcile and clear intercompany accounts; regularise director loan positions. | Signed reconciliations; board minutes. |
Documented processes | Core SOPs written and tested by someone other than the author. | Process library; RACI matrices for critical tasks. |
Management depth | Fill key second-line gaps; put deputies in place; consider retention arrangements. | Organogram; contracts with restrictive covenants. |
Recurring revenue evidence | Segment revenue between contracted, framework, repeat and one-off; validate against invoicing. | Revenue segmentation report. |
Risk if ignored: the buyer discovers weak controls and thin management, and prices the risk into the offer or requests indemnities. Strengthening finance operations and control at this stage is usually the single highest-value phase in the whole programme.
Phase 3: 6 to 12 months before sale – prepare
Area | Actions | Evidence produced |
Adjusted EBITDA | Prepare a fully evidenced normalisation schedule for the last three years and current run rate. | Bridging schedule with source documents. |
Forecast testing | Stress-test forecasts against pipeline, capacity, historical conversion. | Sensitivity analysis; commentary on downside scenarios. |
Contracts and statutory records | Review customer, supplier, lease, IP, financing and employment contracts; update statutory registers. | Contract register; updated PSC register and share certificates. |
Data room | Populate the data room against a formal index; assign an owner to each folder. | Index; folder-by-folder completeness log. |
Seller-side readiness review | Simulated financial due diligence exercise; identify remaining red flags. | Readiness report with actions. |
Red flags | Resolve outstanding tax enquiries, unreconciled balances, IP ownership issues. | Closure evidence; adviser sign-off. |
Risk if ignored: the process starts with the data room half-built and the seller becomes reactive from day one. Work on compliance, risk and governance during this phase closes out statutory and regulatory gaps before a buyer finds them.
Phase 4: 0 to 6 months – execute with discipline
Area | Actions | Evidence produced |
Trading discipline | Continue normal commercial behaviour; do not defer costs or accelerate revenue. | Consistent monthly results. |
Information cadence | Update the data room monthly with fresh management accounts, KPIs and cash. | Version-controlled data room. |
Access control | Restrict data room access; log every download; use redaction where needed. | Access log; NDA register. |
DD tracking | Central log of buyer questions, responses, evidence provided and open items. | Q&A tracker. |
Consistency | Every response is prepared by the same small team; no unexplained accounting changes. | Response protocol; senior sign-off. |
Management meetings | Prepare the leadership team for buyer meetings with rehearsed presentations. | Prepared decks; briefing notes. |
Risk if ignored: inconsistency in the final months of a process is the single biggest cause of last-minute price reductions.
The Finance Director’s sale-readiness scorecard
The scorecard below is a quick self-diagnostic. It is not a formal valuation, a due diligence report or an assurance opinion. It is a way to see, honestly, where the gaps are before a buyer sees them.
Score each item: 0 = absent or unreliable, 1 = partially developed, 2 = documented and reliable.
Question | Score | Owner |
1. Monthly management accounts are produced within 10 working days of month end. |
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2. Every balance sheet account is reconciled monthly with signed supporting workings. |
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3. Forecast accuracy for the last four quarters is within a defined tolerance and explained. |
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4. Cash flow is forecast weekly for 13 weeks and monthly for 12 to 18 months. |
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5. Gross margin is analysed by product, project or customer with a clear owner. |
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6. Customer profitability is measured, not just customer revenue. |
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7. Recurring revenue is contractually evidenced and separately reported. |
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8. Working capital cycle (DSO, DIO, DPO) is tracked and actively managed. |
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9. Tax records are complete: CT, PAYE, VAT, R&D, capital allowances, all filings up to date. |
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10. Key customer, supplier and finance contracts are held centrally and reviewed for change-of-control. |
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11. Statutory registers, share certificates and PSC records are complete and up to date. |
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12. The business can operate for four weeks without the owner making an operational decision. |
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13. Core processes are documented as SOPs and can be run by a deputy. |
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14. Sector-specific compliance (licences, ISO, permits, insurance) is current and evidenced. |
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15. A data room index exists and at least half of the folders are populated. |
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Total score (out of 30) | What it suggests |
0–10 | Significant preparation work required. Any process now would likely produce a repriced offer or a delayed completion. |
11–20 | Foundations are partly in place. Focused work over the next 12 to 18 months should materially improve the outcome. |
21–27 | Close to ready. Concentrate on any remaining zero or one scores and start populating the data room. |
28–30 | Well prepared. Consider a seller-side readiness review to stress-test the position before going to market. |
Not sure how to score yourself objectively? An outside perspective on the scorecard above is often the fastest way to see the gaps you are too close to notice. Arrange a confidential scorecard review with Kimberley and get a candid read on where the business stands today. |
Common problems that reduce value or delay a deal
The list below is drawn from the areas most commonly raised in financial due diligence. None of these consequences is inevitable, but each is a live possibility if the underlying issue is left until the buyer finds it.
Unreconciled balance sheets. Buyers assume unreconciled balances contain errors that inflate profit or hide liabilities. Consequence: further questions, potential price reduction, warranty and indemnity claims.
Unsupported revenue forecasts. Forecasts that cannot be tied to signed contracts, pipeline or capacity are heavily discounted. Consequence: reduced enterprise value or a larger earn-out.
Unclear recurring revenue. If contracted, repeat and one-off revenue cannot be separated, the whole revenue base is treated as one-off for valuation. Consequence: lower multiple applied.
Old or inaccurate WIP. Overstated WIP hides costs that will hit future profit. Consequence: EBITDA adjustment, working capital adjustment, or both.
Poor job costing. Without reliable project-level cost data, the buyer cannot assess where profit is really made. Consequence: valuation caution and larger earn-out weighting.
Inconsistent revenue recognition. Policies applied differently across contracts or periods make the P&L unreliable. Consequence: restatement, adjustment or price reduction.
Unexplained intercompany balances. Balances that do not reconcile between group entities suggest weak controls. Consequence: buyer requests indemnities and additional disclosures.
Overdrawn director loan accounts. These may sit in accounts as debt-like items and can create tax exposure. Consequence: deduction from proceeds and potential s455 charge.
Missing share certificates or incomplete statutory registers. Buyers need clean legal title. Consequence: delayed completion; retention held pending rectification.
Undocumented related-party arrangements. Property leases, service agreements and rebates between connected parties must be at market rate and documented. Consequence: EBITDA adjustment and warranty scrutiny.
Personal costs in the business. Personal vehicles, subscriptions or family payroll blur the true cost base. Consequence: adjustment for the P&L benefit and questions about wider culture of the accounts.
Customer concentration. Reliance on a small number of customers concentrates risk. Consequence: lower multiple, larger earn-out, warranties on customer retention.
Supplier dependency. Single-source suppliers with no alternative expose the business to supply and price risk. Consequence: buyer builds mitigation cost into the model.
Missing employment contracts, poor holiday or payroll records. These may indicate wider employment risk (IR35, unpaid holiday, employment status). Consequence: indemnity or price adjustment.
Unresolved tax enquiries. Open HMRC matters block clean closure. Consequence: retention or specific tax indemnity.
Weak cybersecurity and access controls. Buyers increasingly test IT resilience and data protection. Consequence: additional warranties and post-completion remediation costs.
Change-of-control clauses in customer or finance contracts. These can trigger cancellation or renegotiation on completion. Consequence: revenue at risk; buyer conservatism.
Reliance on the owner for sales, operations or relationships. If the business does not run without you, the buyer either overpays for you or discounts the price. Consequence: larger earn-out, longer handover, extended restrictive covenants.
Missing evidence of intellectual property ownership. Software, designs or brands held personally rather than in the company create legal risk. Consequence: assignment required; potential separate purchase.
Health, safety or environmental weaknesses. Accident record, contaminated land or waste licence gaps drive dedicated environmental due diligence. Consequence: indemnity, retention or price reduction.
Forecasts inconsistent with capacity or pipeline. A revenue forecast that requires more capacity than the business has is not credible. Consequence: forecast rebuilt at buyer’s numbers.
Recognise several of these in your own business? That is normal, not a red flag in itself. What matters is fixing them before a buyer finds them. Book a confidential gap-analysis conversation to work out which issues to tackle first. |
Due-diligence data room checklist
The exact requirements depend on the buyer, transaction structure, sector and advice received. Use this as a working index and populate it in phases. Note that Companies House filings are only a subset of a company’s statutory records; a buyer will also want the full statutory register, board minutes and shareholder resolutions.
Corporate and statutory | • Certificate of incorporation and any change of name certificates • Articles of association and any shareholder agreement • Register of members, register of directors, PSC register • Board and shareholder minutes for the last three years • Share certificates and stock transfer forms |
Shareholders and ownership | • Cap table • Share option and EMI scheme documents (with valuation reports) • Any pre-emption, drag, tag or vesting arrangements |
Financial accounts | • Statutory accounts for the last three financial years • Auditor management letters and any correspondence • Trial balance and general ledger extract at the last year-end |
Management information | • Monthly management accounts for the last 24 months • Board packs including KPI dashboards • Segmental revenue analysis (by product, customer, contract type) • Adjusted EBITDA schedule with supporting evidence |
Banking and debt | • Bank statements for last 12 months • Facility agreements, loan schedules and covenants • Asset finance and hire purchase agreements • Invoice finance facility details |
Tax | • Corporation tax returns, computations and correspondence • PAYE and RTI submissions • VAT returns and any partial exemption or capital goods scheme calculations • R&D claims and supporting technical reports • Any open HMRC enquiries |
Customers and sales | • Top 10 customer revenue by year for the last three years • Master customer contracts and framework agreements • Change-of-control provisions summary • Sales pipeline by stage with probability weighting |
Suppliers | • Top 10 supplier spend by year • Master supplier agreements and any exclusive or minimum-volume terms • Payment terms schedule |
Property and assets | • Freehold and leasehold property details • Lease agreements with break clauses and dilapidations liabilities • Fixed asset register |
Employees and contractors | • Full employee list with role, start date, salary, notice period • Standard and executive employment contracts • Consultancy and IR35 status assessments • Holiday balances at latest date |
Pensions and benefits | • Pension scheme details (auto-enrolment provider, contributions) • Any historic defined-benefit obligations • Benefits summary (PMI, life, incentive plans) |
Legal and contracts | • Material customer, supplier and partnership agreements • Consultancy, agency and distribution agreements • Any settled or ongoing disputes |
Intellectual property | • Registered trade marks, patents and designs • Domain name register • Copyright and software licensing details • Assignments and IP ownership evidence |
Information technology and cybersecurity | • System architecture summary • Data protection and privacy policies • Cybersecurity policy, incident log and any Cyber Essentials or ISO 27001 certification |
Insurance | • Schedule of policies including limits, excesses, expiry dates • Claims history for last five years |
Regulatory and compliance | • Sector-specific licences and permits • ISO and other certifications • AML and sanctions procedures where applicable |
Health, safety and environmental | • H&S policy and accident register • RIDDOR reports • Environmental permits and waste licensing • Any land contamination assessments |
Forecasts and business plan | • Three to five-year forecast (integrated P&L, balance sheet, cash) • Underlying assumptions and sensitivity analysis • Capex plan and any growth investment case |
Operational procedures | • SOPs for critical processes • Organisation chart with reporting lines • Delegated authority matrix |
Litigation and disputes | • Any active or threatened legal proceedings • Employment tribunal cases (past and current) • Warranty claims history |
A note for project-led businesses
Construction, engineering, energy installation and other project-based service businesses need a dedicated preparation lens. A growing order book does not automatically translate into maintainable EBITDA or predictable cash, and buyers know this.
The specific areas to prepare are:
• Contract-level revenue and gross margin: show margin by contract, not just aggregate.
• Cost-to-complete forecasting: how you determine remaining cost, how often it is updated, and how variances are handled.
• WIP and revenue recognition method: percentage-of-completion, milestone or output-based, applied consistently and reconciled.
• Applications for payment, deferred income and retentions: timing differences between billing and revenue must be clear.
• Variations and claims: documented and evidenced, not held as informal assumptions.
• Project overruns and lessons-learned records: how underperforming projects are managed and prevented from recurring.
• Subcontractor liabilities: open positions, disputed valuations, retention obligations.
• Warranty and defects exposure: history of claims, current provisions and how these are calculated.
• Capacity and pipeline weighting: separate opportunities from qualified pipeline, preferred-bidder status and signed contracts. A signed contract is a very different animal from a verbal indication.
• Recurring service and maintenance revenue: evidence of contract length, renewal history, price escalation and churn.
For an example of a project-led business preparing for a clean sale, the Lock & Ledger manufacturing subsidiary exit-planning case study shows how structured financials, forecast credibility and disciplined normalisation supported multiple offers and a completion above initial valuation guidance.
Tax and Business Asset Disposal Relief
Tax is not the main driver of most sale decisions, but it materially affects what you keep. A concise overview is included here; specific advice from a tax adviser is essential well before you go to market.
Business Asset Disposal Relief (BADR) applies a reduced Capital Gains Tax rate of 18% on qualifying disposals from 6 April 2026 (having risen from 14% in 2025/26 and 10% before 6 April 2025) and is subject to a £1 million lifetime limit on qualifying gains (HMRC BADR guide and HMRC helpsheet HS275).
For a disposal of shares in a non-EMI personal company, HMRC’s qualifying conditions generally require that, throughout a two-year qualifying period ending at disposal, you:
• are an employee or office holder of the company (or of another company in the same group);
• hold at least 5% of the ordinary share capital and at least 5% of the voting rights; and
• are entitled to at least 5% of either the distributable profits and net assets on a winding up, or the proceeds on a sale of the company; and
• the company is a trading company or the holding company of a trading group.
Eligibility can be affected by group structure, share rights, previous claims, personally owned assets used in the business, cessation of trade and prior reorganisations.
Personal circumstances and marital planning may also be relevant. An asset sale and a share sale can produce very different outcomes for the seller, and the choice is rarely just a tax decision.
BADR is not automatic. Rush decisions to accelerate or delay a sale to fit a tax deadline can cost more than they save. Get transaction-specific tax advice well before signing heads of terms.
When should an owner bring in a Finance Director?
Most owner-managed SMEs do not need a full-time Finance Director, but many benefit from strategic financial leadership on a fractional basis before and during a sale process. Signs that fractional Finance Director support would be useful include:
• Management accounts arrive late or are unreliable.
• Forecasts are not integrated with the balance sheet or cash flow.
• Gross margin cannot be explained by product, project or customer.
• Profit and cash do not reconcile to each other easily.
• Project profitability is unclear or reported too late to influence decisions.
• Intercompany balances have not been cleaned up for years.
• Recurring revenue is claimed but not evidenced in the invoicing system.
• The leadership team does not receive regular KPIs.
• The data room has not been started, or exists only as folders on a shared drive.
• Buyer questions are already arriving and responses are ad hoc.
• Your existing finance team is focused on transaction processing and compliance.
• You want to improve value before appointing a broker or corporate finance adviser.
If you are new to how a fractional Finance Director works alongside your existing team, the Lock & Ledger Fractional Finance Director FAQ answers the questions owners ask most often before engaging one.
The wider adviser team
A well-run sale draws on several advisers whose roles overlap but do not replace each other:
• Fractional Finance Director: builds the numbers, controls, forecasts and adjusted EBITDA schedule, and manages the finance side of the process.
• Corporate finance adviser: positions the business, approaches buyers, runs the sale process and negotiates commercial terms.
• Tax adviser: designs the transaction from a tax perspective and advises on BADR, EMI, personal and corporate tax.
• Transaction lawyer: drafts and negotiates the sale and purchase agreement, warranties, indemnities and disclosure letter.
• Financial due diligence provider (buyer side): appointed by the buyer to test the numbers. If the seller commissions vendor due diligence, that provider fulfils a similar role sell-side.
• Wealth or personal financial adviser: plans the personal outcome (investment, income, inheritance) once proceeds land.
What to do in the next 30 days
You do not need a 24-month plan to start. The actions below can be started immediately and will give you the diagnostic base to plan properly.
1. Book a two-hour internal review with your finance lead. Print the sale-readiness scorecard in this article and complete it honestly.
2. Pull your last three years of statutory accounts and current-year management accounts side by side. Note anything you cannot immediately explain.
3. Prepare a simple bridge from reported EBITDA to adjusted EBITDA for the current year using the categories in this article.
4. Run a top-10 customer report by revenue and gross margin. Note any customer over 15% of revenue.
5. Ask your accountant for confirmation of all filings for the last three years: statutory accounts, corporation tax, PAYE, VAT.
6. List every task in the business that only you can do. That list is your first owner-dependency register.
7. Confirm that your statutory registers, share certificates and PSC records are complete and up to date.
8. Ask your bank for facility letters, covenant terms and up-to-date drawdown balances.
9. Create a data room folder structure using the index in this article, even if the folders start empty.
10. Book a confidential conversation with Kimberley at Lock & Ledger – someone who has taken businesses through sale processes before – so you know where the gaps sit and how long they will take to close.
Bringing it together
A successful sale is engineered over 18 to 24 months. It is built by improving the quality of earnings, the reliability of financial records, the resilience of working capital, the depth of the management team and the discipline of the operating processes. The final data room is a symptom of that work, not its purpose.
If you are within three years of a possible sale and want a candid view of where the business stands, arrange a confidential initial conversation with Kimberley at Lock & Ledger. Typical starting points are:
• Sale-readiness assessment against the scorecard in this article.
• Financial and operational gap analysis.
• Monthly management reporting build.
• Adjusted EBITDA preparation and evidence pack.
• Working capital improvement program.
• Data room build and readiness review.
• Integrated forecasting.
• Governance and process improvement.
• Due diligence support alongside your corporate finance adviser, tax adviser and lawyer.
Contact Lock & Ledger to arrange an initial conversation: lockandledger.co.uk/contact-us.
Frequently asked questions
How long does it take to prepare a business for sale?
For most owner-managed SMEs, 18 to 24 months is a realistic preparation window. Some sellers complete the work in 12 months; others take three years. The right period depends on the state of the finance function, the depth of the management team, how much value improvement work is needed, and the owner’s objectives. What matters is that preparation happens before the buyer arrives, not during due diligence.
Does Business Asset Disposal Relief apply when selling company shares?
BADR can apply to disposals of shares in a personal company where the seller meets a set of conditions throughout a two-year qualifying period, generally including at least 5% of the shares and voting rights, at least 5% of profits/assets or sale proceeds, being an employee or office holder, and the company being a trading company or holding company of a trading group. BADR is not automatic and specialist tax advice is essential.
What financial information will a buyer request?
A buyer typically asks for three years of statutory accounts, current-year management accounts, monthly management accounts for the last 24 months, trial balance and general ledger extracts, an adjusted EBITDA schedule with supporting evidence, three to five-year forecasts, banking and debt information, and full tax records. In project-led businesses, contract-level revenue, cost-to-complete and WIP schedules are added. See the data room checklist above for a fuller list.
What is the difference between enterprise value and equity value?
Enterprise value is the value of the trading business, independent of how it is financed. Equity value is what the shareholders receive. To move from one to the other in a typical cash-free, debt-free SME transaction, you add surplus cash, deduct debt and debt-like items, and adjust for any working capital shortfall against an agreed normalised level. The worked example in this article shows how the headline number becomes the amount that reaches your account.
When should I appoint a Finance Director before selling?
Ideally 18 to 24 months before you go to market. That gives time to build reliable monthly reporting, clean up the balance sheet, improve working capital, evidence recurring revenue, document controls and prepare the adjusted EBITDA schedule. Bringing an FD in six weeks before the process starts limits what can be done to vendor preparation rather than value improvement.
Sources and further reading
Disclaimer. This article is general information for UK business owners and does not constitute legal, tax, investment or regulated corporate finance advice. Lock & Ledger provides fractional Finance and Operations Director services. Specialist tax and legal advice should be obtained for any transaction. |
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