Not every company with strong financial results is necessarily attractive to a buyer. When an investor analyzes an SME, they don't just look at its revenue or EBITDA. They also try to understand what risks they take on by buying it, to what extent the business can run without its founder, whether profits are sustainable, and how much they'll have to transform the company after the acquisition.
In this webinar, co-hosted with ETL, we reviewed what buyers analyze before making an offer, which problems tend to surface during due diligence, and what a company can do to increase its value before starting a sale process.
Date
Organised by
Want to watch the webinar?
Fill in the form to watch it again
Before making an offer, a buyer tries to answer questions the seller has rarely asked: Can this company keep running without the founder? Are current profits repeatable, or do they reflect a one-off situation? How many changes will need to be made after the acquisition? How likely is it that customers will leave when ownership changes?
The gap between the seller's and the buyer's perspectives matters. The business owner knows the business from the inside and may have run it successfully for years. The buyer has to assess how much of that success belongs to the company and how much depends on people, relationships, or circumstances that don't transfer with the sale. Their analysis focuses on five areas.
Financial quality. The buyer doesn't stop at reported EBITDA — they want to understand its quality and sustainability. Owner personal expenses, off-market compensation, extraordinary income: all of it is adjusted to build an EBITDA that reflects the business's real, recurring profitability.
Customer concentration. A highly profitable company can be a high risk if 40% or 50% of revenue depends on a single customer. And if that relationship is personal to the founder, the buyer will ask what happens when the founder leaves.
Founder dependency. If every decision goes through one person, the know-how lives in their head, and customers only want to talk to them, the buyer isn't acquiring a company — they're acquiring key person risk. An organization with documented processes, shared responsibilities, and a management layer able to operate without the founder offers far more security.
Legal and contractual risks. Key customers without a formal contract, employment contingencies, incomplete corporate records. While the relationship works, it may seem like a minor issue; for a buyer, it creates uncertainty about the future stability of revenue.
The team that stays. The buyer wants to know who will keep running the company after closing. A strong second line of management, with clear responsibilities and autonomy, makes the company far more transferable.
Once there's real interest and the deal moves forward, due diligence is when expectations meet reality. The buyer takes an in-depth look at financial, commercial, operational, and legal information to confirm that everything is consistent with the offer they've made.
The most common problems that come up at this stage are excessive founder dependency, EBITDA that's hard to justify, personal and business expenses mixed together, key customers without contracts, inconsistent margins from year to year, unreliable financial information, and no middle management layer.
The real problem isn't that these risks exist — it's that the buyer discovers them after making their initial valuation. At that point, there are two possible consequences: either the price goes down or the deal falls through. That's why preparing the company before starting the process isn't just about getting a better price — it's about reducing the chance that the transaction fails when it's already well advanced.
One of the most practical ideas from the session was distinguishing what can be improved depending on how much time is available before a potential sale.
With 3 to 6 months, you can tackle quick wins that don't transform the business but do change how it's presented. Get your financial documentation in order, prepare a good teaser and a solid information memorandum (IM), calculate adjusted EBITDA, and be clear on the numbers the buyer will see. It sounds basic, but many companies go to market without this preparation and lose credibility in the first conversations.
With 6 to 12 months, you can address structural factors. Diversify the customer base so that no customer exceeds 25%–30% of revenue, start reducing founder dependency by delegating customer relationships and operational decisions, and carry out a preventive legal review that anticipates what a buyer will find in due diligence.
With 12 to 24 months, the room for improvement is much greater. Professionalize the management team, develop a second line able to operate without the founder, formalize contracts with key customers, put reliable monthly reporting in place, and, if it makes sense, invest in growth that improves valuation multiples.
The conclusion is straightforward: value isn't built during the negotiation, but before going to market.
To close the session, we offered a quick self-assessment any business owner can do.
Can the company run for a month without you? If the answer is no, there's a dependency problem that a buyer will spot and discount. Does more than 30% of your sales depend on a single customer? If so, customer concentration is a risk that lowers the multiple. Do you have reliable monthly financial closes? Without them, the buyer can't analyze the company quickly and due diligence drags on. Do your main customers have formal contracts? Without contracts, future revenue is an expectation, not a commitment. Is there a team able to run operations without depending on you? If not, the buyer assumes a large part of the value walks out the door when you do.
There's no perfect answer to all of them. But the harder it is to answer yes, the more room there is to prepare the company before starting a sale process. If you'd like a practical guide on how to approach that preparation, we've published an article on the 6 keys to preparing your SME before meeting with buyers.
Don't miss Deale's upcoming events
Get exclusive access to our upcoming events, analysis and conversations about buying and selling companies and M&A for SMEs
