Kit 09: selling the firm
The Sale Kit
Prepare a services business for a sale from the seller's side: a diligence file written before the buyer asks, numbers in the shape a buyer reads, and a scorecard of what moves the value.
This kit prepares a services business for a sale, from the seller's side of the table. It is for founders somewhere between one and three years from selling, who want to arrive at diligence with the answers already written rather than assembled in a hurry while they are still running the business. The earlier the work starts, the more of it can be done on your terms.
The centre of it is a seller-side diligence file, built from public due diligence checklists and my own recollection of the selling side: what a buyer of a services firm asks for, in roughly what order, and what a good answer looks like. A finance normalisation checklist gets the numbers into the shape a buyer will read them in, so the accounts tell one consistent story, with every adjustment explained.
A valuation-driver scorecard rates the things that move what a buyer will pay for a services firm, such as recurring revenue, client concentration, margin and how much of the business depends on its founder, so you can see where a year of work would make the most difference. The last chapter is about reading an offer: what each part of it means for you, and which questions to ask before you answer.
DevOpsGroup, the services business I helped start in 2013, was sold for over $30m eight years later. The kit is written from my notes and my recollection of that side of the table. It is general guidance for preparing a firm, not legal, tax or financial advice, and it does not replace the advisers who act for you.
What you will get
Who it is for
Questions
- When should I start preparing a services business for sale?
- One to three years before you mean to sell. That is long enough to fix what a buyer will find, such as client concentration or a business that depends on you, and to show the fix working in the numbers.
- What is seller-side due diligence?
- Doing the buyer's diligence on yourself first: collecting the documents, the numbers and the answers a buyer will ask for, and finding the problems while there is still time to fix them. The kit's diligence file is built from public checklists and set out for a services firm.
- What is finance normalisation?
- Adjusting the accounts so they show the business a buyer is actually taking on: one-off costs and income separated out, owners' pay set at a market rate, and every adjustment explained. The checklist works through the common ones for a services firm.
- Is the kit legal or financial advice?
- No. It is general guidance for preparing a firm for sale, from the seller's side. It does not replace the lawyers, accountants and advisers who act for you.