How to prepare my company for sale

The sale of a company is not an event; it is a process. It is, in all likelihood, the most complex and consequential financial transaction in an entrepreneur's life. However, the Mergers and Acquisitions (M&A) market is ruthless toward improvisation: it is estimated that more than 50% of initiated operations never reach a Closing, and among those that do, many suffer significant price erosion during the final phase due to a lack of prior preparation.

Preparing a company for its sale involves a fundamental paradigm shift: moving away from managing the business for short-term tax optimization or the partners' lifestyle, and starting to manage it for the creation of transferable value. This "fine-tuning" process (Exit Planning) should ideally begin between 12 and 24 months before going to market.

At Maraz Corporate Finance, we understand that selling is not giving up, but rather the culmination of a masterpiece. Below, we present a guide to preparing your company for the scrutiny of professional investors, ensuring not only the sale but the maximization of the price and the legal security of the operation.

Key signals that indicate the optimal time to sell a company

Success in M&A is a function of two variables: the quality of the asset (your company) and market timing. Aligning both variables is the art of the corporate sale.

The Macroeconomic and Sector Context (External Factors)

Buyer appetite is not constant. Identifying a "window of opportunity" requires monitoring:

  • Liquidity Levels and "Dry Powder": Private Equity funds have investment mandates with expiration dates. In periods where there is an excess of uninvested capital (Dry Powder), competition to acquire good assets drives up valuation multiples.
  • Sector Consolidation: When a sector matures, large players tend to buy smaller ones to gain market share or achieve synergies. Selling during a "consolidation wave" allows you to take advantage of strategic premiums. Staying out of this wave can isolate the company against much larger competitors.
  • Cost of Debt: Most buyers use financial leverage (debt) to purchase companies. Stable or low-interest-rate environments make it easier for buyers to pay higher prices (valuation is inversely related to the WACC).

The Company Life Cycle (Internal Factors)

There is a common mistake: wanting to sell when the company has hit its ceiling.

  • The Growth Paradox: Investors buy the future, not the past. If you sell at the absolute peak and there is no credible growth story ahead, the buyer will penalize the price. The optimal moment is when the company has a solid upward trajectory and, crucially, there is still value left to be captured for the new owner (new markets, new products, pending digitalization). You have to "leave some meat on the bone" for the buyer.
  • Predictability: More important than explosive but erratic growth is predictable growth. The reduction of volatility in revenue is one of the clearest signs of maturity for a sale. Private equity funds prefer companies with predictable and low-volatility cash flow generation to structure the operation.

Internal factors to evaluate before preparing my company for sale

Before drafting the Information Memorandum (CIM), it is imperative to conduct an honest internal audit. Buyers will apply a forensic magnifying glass to your business; you must do it before they do.

Financial Health and "Quality of Earnings"

Accounting and economic reality often differ. To prepare for the sale, we must build an analytical income statement that reflects the true capacity for cash generation.

  • EBITDA Normalization: EBITDA is the king of metrics, but it must be purified. A buyer will not pay for your personal expenses. It is vital to identify and document "Normalization Adjustments": partner salaries above or below market rate, non-recurring expenses (severance, litigation, moving costs), or personal expenses charged to the company. The same applies to extraordinary or non-recurring income. One dollar of adjusted EBITDA is multiplied by the valuation multiple (e.g., 6x or 8x) in the final price; therefore, every adjustment counts.
  • Management of Working Capital: Many entrepreneurs neglect inventory and accounts receivable. If your company requires high working capital to operate, the buyer will subtract that inefficiency from the price. Optimizing the cash cycle months before the sale improves the net valuation.

Operational Independence and "Key Person" Risk

The greatest destroyer of value in SMEs is dependency on the owner. If the founder is the one who holds client relationships and technical knowledge, the company is not transferable.

  • Management Structure: There must be a second line of leadership (Middle Management) capable of operating the business day-to-day without shareholder intervention.
  • Proceduralization: "Know-how" must move out of people's heads and onto paper (or software). Procedure manuals, sales protocols, CRM, and integrated ERP systems demonstrate that the business is a replicable machine, not a form of personalist craftsmanship.

Risk Diversification

Concentration of risk kills deals.

  • Customer Concentration: If one client represents more than 20-25% of sales, any buyer will perceive a binary risk. If that client leaves, the business collapses. Before selling, it is vital to dilute this risk by acquiring new customers or signing long-term, ironclad contracts with main clients.
  • Supplier Concentration: Relying on a single supplier for a critical raw material gives control of your production to a third party. Certifying alternative suppliers is a mandatory risk mitigation measure.

The role of business valuation in the sales process

"Only a fool confuses value and price." Antonio Machado - Campos de Castilla (1912)

In the context of the M&A and company sales article we have worked on, this distinction is absolutely critical and summarizes the essence of financial advisory:

  • Value: Is intrinsic. It depends on the fundamentals of the company: its capacity to generate cash, its team, its technology, its brand, and its future potential. It is what the company "is" and what it "can become."
  • Price: Is a figure in a contract. It depends on the negotiation, the market moment, competitive tension, and the seller's skill. It is what the buyer "pays."

The lesson for the entrepreneur: A company can have high value (be a great business) but sell for a low price if it is not well-prepared (disordered accounting, hidden risks, owner dependency, high concentration of clients or suppliers, low-level management team...).

The goal of preparing the company for sale is precisely to align the price with the value, preventing the market from penalizing the seller for a lack of professionalism in the process.

Therefore, business valuation should not be understood solely as a number, but as a strategic tool that guides the entire sales process. A well-crafted valuation allows for setting a target price range, preparing for negotiation, and anticipating buyers' questions and objections. Maraz has extensive experience in business valuation and can advise you on defining a reasonable valuation range for your company.

Professional methods for valuing a company:

Professional investors use a triangulation of methods:

  • Discounted Cash Flow (DCF): Projects the company's future capacity to generate free cash flow, discounted to present value based on risk (WACC). It is the most technically correct method for companies with long-term business plans.
  • Comparable Transaction Multiples: Analyzes at what EBITDA multiple similar companies (sector, size, geography) have been sold in the last 24 months. This provides a dose of market reality.
  • LBO (Leveraged Buyout) Analysis: If the potential buyer is a Private Equity fund, they will value your company based on how much debt they can leverage for the operation and what return they will get over 5 years. Understanding their model allows us to know how far they can stretch the price.

From Enterprise Value to Equity Value

This is the most common point of friction. The valuation usually yields the Enterprise Value, which is the value of the business "debt-free and cash-free." However, the money the seller receives is the Equity Value. The bridge equation is vital:

Equity Value = Enterprise Value - Net Financial Debt + Working Capital Adjustments.

Understanding this mechanic is crucial: paying off debt before the sale does not increase the Enterprise Value, but it does increase what you receive (Equity Value). Likewise, correctly defining what is "Debt" and what is "Working Capital" during preparation can lead to million-dollar differences in the final check.

How valuation influences price and negotiations:

Valuation conditions both the initial price and the final structure of the operation. During negotiation, adjustments may arise from due diligence, deferred payment mechanisms, or earn-out schemes linked to future performance. However, having a professional valuation facilitates price defense, provides objective arguments, and reduces the risk of unnecessary concessions during the negotiating process. One must clearly distinguish between "Valuation and Price." The initial valuation sets the range of reasonable value and allows the seller to set a target price for which they would be willing to sell. Throughout the negotiations, with the company's own evolution in the current fiscal year (as the process lasts months) and especially after the due diligence process, proposals for adjustments in the valuation may arise from the buyer. Nevertheless, starting from a professional valuation at the beginning of the process allows for a much better defense of the target price.

Essential documentation and due diligence: what do buyers expect?

Due Diligence is the acquisition audit. It is the moment of truth where the buyer will verify if what was sold in the "Teaser" is real. Lack of preparation here is the #1 cause of downward price renegotiations. Buyers expect to find clear, complete, and structured information regarding financial, commercial, and operational levels, as well as legal, tax, and labor matters.

Clear and audited financial information:

Historical financial statements and detailed explanations of the main items and their evolution are essential. Information transparency builds trust and streamlines analysis by investors.

The Virtual Data Room (VDR): All company documentation must be digitized, indexed, and uploaded to a secure Data Room before inviting any investor. This includes: deeds, contracts with clients/suppliers, software licenses, organizational charts, several years of audited annual accounts, tax filings, asset details, insurance policies, and ongoing litigation. A well-organized data room, with consistent and updated information, demonstrates professionalism and reduces the risk of price adjustments due to uncertainty.

Financial Projections (Business Plan)

The buyer needs to believe in the future. A 3-5 year Business Plan must be prepared that is ambitious yet defensible, based on specific metrics (sales pipeline, framework contracts, market trends). An unrealistic plan destroys credibility; a plan that is too conservative leaves money on the table.

Vendor Due Diligence (VDD): Changing the rules

Traditionally, the buyer commissions the audits. However, the trend in mid-market operations is for the seller to commission their own Vendor Due Diligence (Financial, Legal, and Tax) before going to market. Why invest in a VDD?

  • Early Problem Identification: It allows for detecting contingencies (e.g., accounting errors, hidden liabilities, tax risks) and correcting them before the buyer sees them.
  • Agility and Control: The seller delivers the completed VDD report to the buyer. This shortens the process by weeks or months and reduces "deal fatigue."
  • Price Defense: It is much harder for a buyer to dispute the numbers if they are already backed by an independent expert hired by the seller.
  • Quality Explanations: Regarding the evolution of the company's main variables in the past, current year, and expectations in the business plan, it greatly facilitates the buyer's understanding of what they are purchasing, reduces perceived risk, and increases confidence.

Strategies to increase your company's market attractiveness

Optimization of profitability and maximization of cash generation prior to the sale:

Beyond EBITDA, buyers analyze the capacity for cash generation with special attention. Optimizing working capital, improving operational efficiency, and prioritizing business lines with a higher contribution to cash flow allow for presenting a more solid and financially autonomous company. Eliminating non-recurring expenses, reviewing cost structures, and improving margins increase perceived value and reinforce the credibility of financial projections.

In addition to cash generation, there are qualitative levers ("Intangibles") that can turn a "correct" company into an object of desire for which premium multiples are paid:

Recurrence and Quality of Income

Not all Euros are worth the same. A dollar of recurring revenue (subscription, maintenance contract, SaaS) is worth much more than a dollar from a one-off sale. Strategy: Before the sale, try to "migrate" your clients toward recurring contract models or managed services. Increasing the percentage of Annual Recurring Revenue (ARR) directly raises the valuation multiple.

Entry Barriers (Moats)

The buyer seeks security. What prevents a competitor from taking your market tomorrow?

  • Intellectual Property: Patents, trademarks, proprietary software. Ensure all intangible assets are correctly registered in the company's name, not the partners' or third parties'.
  • Switching Costs: Demonstrating that it is difficult or costly for your clients to move to the competition increases perceived value.
  • Market Niches: Clear leadership in a small niche is often valued more than being an irrelevant player in a giant market.

Strengthening the human team and professionalizing management:

A professionalized human team, with autonomy and continuity, is one of the factors that generates the most confidence in buyers. Reducing dependency on the founder, delegating key functions, and ensuring the existence of a capable management team to lead the company after the sale is essential. Clear governance structures reinforce business stability and substantially improve attractiveness.

Key Talent Retention

The buyer's fear is that, after the sale, talent will flee. Implementing long-term incentive plans (Phantom Shares or Stay Bonuses) before the sale is a master strategy. These plans align key executives with the sale (they receive a bonus if it sells) and with the future (the bonus is paid in stages if they remain at the company after the operation). This offers the buyer a motivated and "locked-in" team (Golden Handcuffs).

ESG Strategy (Sustainability and Governance)

Compliance with ESG criteria (Environmental, Social, Governance) has moved from being cosmetic to being an investment requirement for many institutional funds. Having basic sustainability policies, equality plans, and transparent corporate governance (e.g., board meetings with up-to-date minutes) makes the company "investable" for a much wider range of international buyers.

Transparency

Transparency is a critical element in any sales process. Companies with clear information, well-documented processes, and orderly corporate structures generate less friction during due diligence and reduce the probability of downward price adjustments. Being “ready to be audited” conveys control, professionalism, and business maturity—three attributes highly valued by professional investors.

Proposal for an orderly transition after the sale:

The possibility of an orderly transition after the sale significantly increases buyer confidence. In many cases, the seller's commitment to remain at the company for an agreed period—as an executive, advisor, or member of a consultative body—facilitates knowledge transfer and relationships with strategic clients. This accompaniment reduces operational risks in the initial post-closing phase and can positively influence both the price and the structure of the deal.

All these actions have a common goal: to reduce the risks perceived by potential acquirers. The greater the visibility of business continuity and the lower the uncertainty, the greater the interest and competition among buyers, with a direct impact on the final price.

Operation Structuring

The deal structure is just as important as the price. Preparing the company involves assuming that during the negotiation process, the buyer will negotiate aspects such as:

  • Earn-out and Deferred Payments: It is common for the buyer to ask to retain part of the price and pay it in the future, conditioned on the company meeting certain EBITDA targets (Earn-out clause). Preparing for this involves having a prepared team and a robust financial reporting system that allows for measuring those objectives without ambiguity in the future, avoiding post-sale legal conflicts.
  • Reinvestment (Rollover): In many operations with Private Equity, the seller is asked not to sell 100%, but to reinvest a portion (e.g., 20%) in the new structure to remain aligned. Being mentally and financially prepared to be a minority partner of a fund requires a significant mindset shift that must be worked on in advance.

Professional advice as a guarantee of success in the corporate sale

Selling a company is an asymmetric process: the buyer (fund or large corporation) has usually bought ten companies this year; you will probably only sell one in your life. Facing this experience imbalance without advice is reckless.

  • Generation of Competitive Tension: The most valuable asset an M&A advisor (Corporate Finance) provides is not just doing numbers, but creating competition. A company is worth what someone pays for it, but if there are three interested parties bidding, it can be worth much more. An advisor structures a "restricted auction" process, inviting multiple buyers in a confidential and coordinated manner. Knowing they are not the only ones at the table forces buyers to present their best offers (higher price and better conditions) and to expedite Due Diligence.
  • Emotional Management and "Shield": A sale is an emotionally violent process. The founder will see strangers questioning their decisions from the last 20 years, criticizing their margins, and looking for faults. The advisor acts as a buffer or "bad cop." They absorb the tension of tough negotiation, allowing the owner to maintain a cordial and constructive relationship with the buyer—something vital given they will likely have to coexist during the transition period.
  • Integral Coordination of the Process: An M&A operation is a complex orchestra that includes commercial lawyers, tax experts, auditors, strategic consultants, and bankers. At Maraz Corporate Finance, we act as coordinators for the entire process. From the initial valuation to the signing before a notary, including Data Roommanagement and the negotiation of the Share Purchase Agreement (SPA), the presence of a specialized advisor maximizes the probability of success and minimizes post-sale risks.

At Maraz Corporate Finance, we accompany our clients holistically in company sale processes. Our experience in valuation, process management, and buyer search allows us to design tailor-made operations aligned with the seller's strategic and wealth objectives.

If you are considering how to prepare your company for sale, having a specialized advisor from the early stages can make the difference between a correct operation and a truly successful one. We are at your disposal to analyze your case and help you maximize your company's value.

Javier de Rojas Roca de Togores

Partner - Maraz Corporate Finance