Transaction readiness: preparing to raise capital or sell

Companies raising capital usually focus on the pitch. Experienced buyers and investors focus on the evidence. The gap between the two is where valuations are discounted, conditions are added and timetables slip.

Transaction readiness is the work of closing that gap before a process starts — normally six to twelve months before.

Quality of earnings comes first

The single most scrutinised number is sustainable earnings. Prepare your own analysis before an acquirer prepares theirs, and be candid in it:

• Separate recurring from one-off revenue, with the contractual basis stated
• Identify related-party transactions and restate them at arm's length
• Normalise owner compensation, personal expenses and non-market rents
• Disclose accounting policy choices in revenue recognition, capitalisation and provisioning, and quantify the effect of alternatives
• Reconcile management accounts to audited statements for three years, explaining every material difference

A seller-prepared quality of earnings analysis that anticipates adjustments is a credibility asset. Adjustments discovered by the buyer are a price negotiation.

Working capital is where deals are quietly re-priced

Buyers set a normalised working capital target and adjust price against it at completion. Sellers who have never modelled their own working capital cycle enter that discussion without a position.

Model twenty-four months of monthly working capital, understand seasonality, and be ready to explain unusual movements. Clean up before the process: collect aged receivables, resolve disputed balances, write off what is not recoverable, and stop accelerating collections artificially in the months before diligence — buyers detect it and it costs trust.

Build the data room around the questions you will be asked

A disorganised data room signals disorganised management. Structure it in the order diligence follows: corporate and constitutional documents; financial statements and management accounts; tax filings and correspondence; material contracts; employment and pensions; assets and property; intellectual property; litigation and regulatory matters; insurance; and IT systems.

For each material contract, prepare a one-page summary: counterparty, term, value, change-of-control provision, termination rights and any unusual obligation. Change-of-control clauses in particular should be identified early — a customer contract that terminates on a change of ownership can be a deal issue rather than a detail.

Resolve the known problems yourself

Every business has them: an unresolved tax assessment, a contract without a signed renewal, a shareholder loan never documented, a regulatory licence in a subsidiary's name. Each will surface. Discovered by the buyer, it becomes an indemnity, an escrow or a discount. Disclosed and remediated by the seller, it becomes a footnote.

Run a mock diligence exercise. The cost is modest relative to the value it protects.

Support valuation with evidence, not narrative

Valuation conversations improve when management brings evidence rather than aspiration: cohort retention data, unit economics by product and channel, pipeline conversion rates with history, and a bridge from current performance to the forecast that identifies which assumptions carry the value.

Present a downside case yourself. Management teams that only present the upside invite buyers to construct the downside for them, usually more severely.

Governance signals risk

Buyers read governance as a proxy for reliability. Before a process: ensure board minutes exist and are current, statutory registers are complete, filings are up to date, delegated authorities are documented, and related-party arrangements are approved and recorded. These are inexpensive to fix and expensive to explain.

Prepare the people question

Key-person dependency is a genuine value issue in owner-managed businesses. Where the founder holds the customer relationships, the pricing knowledge and the supplier terms, a buyer prices that risk. Documenting processes, formalising second-line management and transferring relationships over the twelve months before a transaction materially changes the negotiation.

A realistic timetable

Readiness work takes three to six months. A process from launch to completion typically takes a further four to nine. Companies that begin readiness after receiving an approach are usually negotiating from a weaker position than those who prepared before being approached.

Our financial and transaction advisory practice supports valuation, financial due diligence, transaction readiness, deal structuring and post-transaction integration for companies and investors.