M&A for Sellers: How to Prepare Your Company

The High Cost of Selling Without Preparation

We know an industrial sector entrepreneur who received an €8M offer for his company. He accepted immediately. During due diligence, buyers discovered: customer contracts without formalization, critical processes dependent on the founder, a balance sheet with obsolete assets inflating book value, and a lack of structured financial documentation. The final price? €5.2M. A loss of €2.8M in 4 months.

The problem was not that the company was bad. It was the amateur presentation. When you don’t prepare a company for sale, you transfer risk to the buyer—and risk always lowers the price. Professional buyers know how to spot: key person dependency (15-25% discount), customer concentration (10-20% discount), undocumented processes (10-15% discount), and informal governance (5-15% discount).

Structured preparation for sale is not cosmetic. It is applied financial engineering. Each lever—from cleaning up the balance sheet to building the data room—reduces perceived risk and increases attractiveness to multiple buyers. Prepared companies close transactions 40% faster and achieve valuations 20-40% higher. Not by magic, but by systematically eliminating red flags that scare buyers away.

This guide details the 6-month protocol that transforms a Portuguese SME from "sellable" to a premium acquisition. We will work on 8 levers: balance sheet cleanup, governance professionalization, process documentation, revenue diversification, team preparation, results normalization, data room construction, and crafting the sale narrative. Each lever includes concrete steps, templates, and pitfalls to avoid.

The 6-Month Protocol to Prepare a Company for Sale

Month 1: Balance Sheet Cleanup and Results Normalization

What to do: Audit and clean up the balance sheet to present a financial snapshot reflecting only productive assets and real liabilities. Simultaneously, normalize operating results by eliminating non-recurring and personal expenses.

Why: Professional buyers always adjust EBITDA and the balance sheet. If you don’t do it first, they will—with conservative criteria that lower the price. A company with €1M reported EBITDA may have €600K normalized EBITDA if personal expenses are hidden. Cleaning up in advance lets you negotiate from solid numbers.

How to execute:

Step 1.1 — Asset Audit: Go through the balance sheet line by line. Identify obsolete assets (idle equipment, dead stock, unused fixed assets). Account for missing depreciations. Reclassify personal assets (partner’s car, non-operational properties) to partners’ accounts. Result: a balance sheet showing only productive assets.

Step 1.2 — Liability Cleanup: Settle old supplier debts. Eliminate "phantom" payables (amounts provisioned for years without movement). Formalize partner loans with written contracts and market rates. Renegotiate bank debt terms if necessary—buyers prefer structured debt over chaotic short-term liabilities.

Step 1.3 — EBITDA Normalization: Create an adjustment table. List all non-recurring expenses from the last 3 years: excessive founder salary (adjust to market rate), personal expenses (fuel, meals, family trips), one-off investments (ad hoc consulting, litigation), and depreciation of already written-off assets. Document each adjustment with justification. Example: if you pay the founder €120K/year and the market pays €70K for an equivalent CEO, add €50K to normalized EBITDA.

Step 1.4 — Tax vs. Accounting Reconciliation: Prepare a clear bridge between tax results (minimized) and economic results (real). Many Portuguese SMEs report low profits due to legitimate tax optimization. Document the differences: accelerated depreciations, conservative provisions, revenue recognition timing. Buyers need to see the "true" cash flow.

Practical example: A distribution company had €800K in inventory on the balance sheet. The audit revealed €200K in discontinued products and €100K in damaged stock. They wrote off €300K, reducing assets but increasing credibility. The buyer found no surprises and accepted the clean balance sheet as the negotiation basis.

Common mistake: Hiding problems hoping the buyer won’t find them. They always do. And when discovered during due diligence, the buyer assumes there’s more hidden—so they lower the price preemptively or walk away.

Month 2: Governance Professionalization and Corporate Documentation

What to do: Formalize the governance structure, update corporate documentation, and create documented decision-making processes. Transform "Portuguese-style" management (informal, trust-based) into a structure that works without the founder.

Why: Institutional buyers (funds, private equity, listed companies) demand professional governance. Lack of meeting minutes, undocumented decisions, and mixing personal and business assets are red flags that lower valuation or block the deal.

How to execute:

Step 2.1 — Corporate Documentation Audit: Gather: updated articles of association, minutes of all meetings (last 5 years), records of capital changes, partner agreements, valid powers of attorney. If minutes are missing, reconstruct historical decisions and formalize retroactively (with legal support). Buyers always check the "decision chain"—any gap raises suspicion.

Step 2.2 — Separation of Personal and Business Assets: List all mixed assets/liabilities: properties in the company’s name used by the family, personal vehicles, informal loans. Formalize the separation: transfer personal properties to personal ownership (or create a lease contract with the company at market rate), sell personal vehicles to the company or remove them from assets, convert informal loans into contracts with interest and terms.

Step 2.3 — Creation of a Functional Board of Directors: If the company only has a managing partner, set up a board with at least 3 people: founder, CFO, and an independent advisor (can be an external consultant). Hold monthly meetings with minutes. Document strategic decisions: investments >€50K, senior hires, pricing changes, new markets. Goal: show that decisions don’t depend on one person.

Step 2.4 — Formal Delegation of Authority: Create a written authority matrix: who approves what up to which amount. Example: sales director approves discounts up to 15%, CFO approves payments up to €25K, CEO approves investments up to €100K, board approves above that. Document in internal regulations.

Practical example: A family logistics company only had meeting minutes for the last 2 years. Other decisions (capital increases, new partners) were "verbal." They reconstructed missing minutes, formalized all corporate actions, and created a board with the CFO and external lawyer. Due diligence passed without governance issues—a rarity among Portuguese SMEs.

Common mistake: Creating "window dressing" governance with no substance. Buyers interview the team. If the board never meets or minutes are generic, they spot it immediately. Governance must be real, not theater.

Month 3: Documentation and Systematization of Critical Processes

What to do: Map, document, and systematize the 10-15 critical business processes. Create operational manuals so any new manager can understand how the company works within 48 hours.

Why: "Knowledge in the founder’s head" is the biggest value destroyer in M&A. If commercial, operational, and financial processes depend on institutional memory, the buyer assumes post-acquisition disruption risk—and discounts the price by 15-30%.

How to execute:

Step 3.1 — Identification of Critical Processes: List the processes that generate 80% of value: customer acquisition, production/delivery, supplier management, invoicing and collections, quality control, inventory management, recruitment, financial reporting. Don’t document everything—focus on the 10-15 processes that, if they fail, stop the company.

Step 3.2 — Mapping Current Processes: For each critical process, create a simple flowchart (PowerPoint is fine, no need for expensive software). Identify: trigger (what starts it), steps (sequence of actions), responsible parties (who does each step), systems used (ERP, CRM, Excel), outputs (what results), and KPIs (how to measure success). Example for "customer acquisition": lead comes in (trigger) → commercial qualification (salesperson A, CRM) → proposal (salesperson + pricing in Excel) → negotiation (sales director) → closing (signed contract, CRM updated) → KPI: lead-to-client conversion rate.

Step 3.3 — Creation of Operational Manuals: Turn flowcharts into written documents. Simple format: process objective, detailed step-by-step, system screenshots, templates used (emails, contracts, checklists), common exceptions and how to resolve them, and support contacts. Test the manual: give it to someone unfamiliar with the process and ask them to execute. If they can do it without asking, it’s good.

Step 3.4 — Digitization and Centralization: Store all manuals on an accessible platform (SharePoint, Google Drive, Notion). Suggested structure: folder per department, subfolder per process, PDF file per manual. Version documents (v1.0, v1.1) and indicate last update date. During due diligence, this becomes part of the data room.

Practical example: A B2B services company had its entire pricing process "in the head" of the sales director. They documented: cost tables per service, margin matrix by client type, discount rules, and required approvals. They trained two junior salespeople to do pricing independently. The buyer saw the business didn’t depend on one person—valuation increased by 25%.

Common mistake: Documenting "ideal" processes that no one follows. Document what actually happens, then optimize. Buyers test processes during due diligence—if reality doesn’t match the document, you lose credibility.

Month 4: Revenue Diversification and Reducing Concentration

What to do: Reduce dependence on key clients, sole suppliers, and concentrated products/services. Goal: no client representing >15% of revenue, no supplier being irreplaceable, no product representing >40% of turnover.

Why: Concentration is direct risk. Buyers apply steep discounts: client >20% of revenue = 15-25% discount on valuation. Critical sole supplier = 10-15% discount. Dominant single product = 10-20% discount. Diversifying in 6 months won’t solve everything, but it shows trajectory and reduces red flags.

How to execute:

Step 4.1 — Current Concentration Analysis: Create a table with top 10 clients (% revenue), top 5 critical suppliers (% cost or irreplaceability), and top 5 products/services (% revenue). Identify red flags: any client >15%, any supplier without an alternative mapped, any product >40%. This table goes into the data room—better to present it with a mitigation plan.

Step 4.2 — Client Diversification Plan: If you have a concentrated client, execute in parallel: (1) formalize a long-term contract with that client (3-5 years, costly termination clauses)—turns risk into an asset; (2) launch an aggressive campaign to acquire similar clients—even if with lower margins initially, it reduces concentration; (3) if possible, create a second distribution channel (if you sell direct, add partners; if you sell via a single partner, add direct sales).

Step 4.3 — Mapping Alternative Suppliers: For each critical supplier, identify 2 viable alternatives. Test with a small order. Document: name, contact, comparative price, lead time, quality. The goal isn’t to switch suppliers (if it works, keep it), but to prove to the buyer you have a plan B. During due diligence, this information is gold.

Step 4.4 — Portfolio Expansion (if viable): If you have a dominant product, consider: launching a variant (premium/basic version), adding a complementary service (if you sell a product, add maintenance; if you sell a service, add training), or entering an adjacent segment. It doesn’t need to represent significant revenue in 6 months—just needs to be in the pipeline with initial traction.

Practical example: An industrial company had 1 client representing 35% of revenue. Impossible to diversify in 6 months. Solution: they negotiated a 5-year contract with a €500K penalty clause for early termination. Simultaneously, they secured 4 new smaller clients (8% of revenue in total). They presented to the buyer: risk mitigated by contract + diversification trajectory. Buyer accepted only a 10% discount (vs. typical 25%).

Common mistake: Hiding concentration hoping the buyer won’t ask. It’s always the second question in due diligence (the first is EBITDA). Better to present the problem with a mitigation plan than to be caught hiding it.

Month 5: Team Preparation and Reducing Founder Dependency

What to do: Build a management team that demonstrates the ability to operate without the founder. Document critical knowledge, train successors for key roles, and create a clear organizational structure.

Why: "Key man risk" (founder dependency) is the number one red flag in M&A transactions in Portugal. Buyers assume the founder will leave post-acquisition (even if they stay 1-2 years). If the business collapses without them, valuation drops 30-50% or the deal falls through.

How to execute:

Step 5.1 — Audit of Critical Dependencies: List everything only the founder knows how to do: relationships with key clients, negotiations with suppliers, critical technical decisions, financial approvals, crisis resolution. For each item, assess: can it be documented? Can it be delegated? Is hiring needed? Prioritize the 5-7 most critical items.

Step 5.2 — Hiring or Promoting a General Manager: If you don’t have one, hire or promote someone to general manager/CEO (not the founder). Profile: operational management experience, credibility with the team, ability to make autonomous decisions. Over 6 months, gradually transfer responsibilities: weeks 1-4 (shadowing), weeks 5-8 (co-decision), week 9+ (autonomous decision with supervision). Founder becomes chairman/advisor.

Step 5.3 — Documentation of Key Relationships: For each critical client/supplier where the founder is the main contact: (1) formally introduce the new general manager or sales director in a three-way meeting; (2) gradually transfer communication (founder in cc, then only the new manager); (3) document the relationship history (how it started, informal agreements, client preferences, past issues resolved). Goal: prove the relationship survives the transition.

Step 5.4 — Creation of a Functional Org Chart: Draw a clear org chart with: name, position, main responsibilities, and reporting lines. Avoid structures where "everyone reports to the founder." Create layers: founder → general manager → department heads → teams. Even if the company has 15 people, structure it as if it had 50—it shows scalability.

Step 5.5 — Talent Retention Plan: Identify 3-5 critical people (besides the founder). Create a retention plan: stay bonuses (paid 12-24 months post-acquisition), clear promotions, or stock options if the buyer allows. Document and share with the buyer during negotiations—it reduces the risk of talent loss post-deal.

Practical example: The founder of a tech company was the only one dealing with the 3 largest clients (60% of revenue). He hired a sales director 8 months before the sale. Over 6 months, he transitioned: three-way meetings, then founder only in cc on emails, then zero involvement. On due diligence day, the buyer interviewed the 3 clients—all confirmed comfort with the new contact. Deal closed with no key man risk discount.

Common mistake: Making a "window dressing" transition—the new director exists but the founder still makes all decisions. Buyers interview the team separately. If they sense it’s theater, they discount anyway.

Month 6: Data Room Construction and Sale Narrative Preparation

What to do: Compile all documentation buyers will request during due diligence in an organized platform (virtual data room). Simultaneously, prepare the investment memorandum (company presentation document) and pitch deck for initial meetings.

Why: A well-organized data room accelerates due diligence by 50-70% (from 6 months to 2-3 months). Every day due diligence drags on increases the risk of deal break. A professional sale narrative positions the company as a strategic investment (not a "business for sale out of desperation") and attracts multiple buyers—essential for maximizing price.

How to execute:

Step 6.1 — Choosing a Data Room Platform: Use a professional virtual platform (Intralinks, Datasite, or more affordable alternatives like DocSend, Dropbox Business with advanced permissions). Don’t use email or WeTransfer—you need: user-level access control, tracking of who viewed what, ability to revoke access, and a professional folder structure.

Step 6.2 — Data Room Structure: Organize into 10-12 main folders:

• 1. Corporate: articles of association, minutes, commercial records, partner agreements, org chart
• 2. Financial: audited financial statements (3-5 years), monthly reports (last year), tax reconciliation, current budget, 3-year projections, EBITDA adjustment table
• 3. Commercial: anonymized client list (top 20 with % revenue), standard contracts, sales pipeline, churn history, market studies
• 4. Operations: process manuals, certifications (ISO, etc.), critical supplier contracts, main asset list, insurance
• 5. HR: detailed org chart, employment contracts (initially anonymized), salary policy, incentive plans, turnover history
• 6. Legal: main client contracts, supplier contracts, leases, intellectual property, litigation (current or past), regulatory compliance
• 7. IT: systems inventory, software contracts, security policies, backup procedures
• 8. Insurance and Risks: current policies, claims history, risk matrix
• 9. Tax: IRS/IRC filings (3 years), tax inspections, known contingencies
• 10. Projects and Pipeline: ongoing projects, opportunity pipeline, planned investments

Step 6.3 — Preparation of Investment Memorandum (IM): A 20-30 page document presenting the company. Typical structure:

• Executive Summary (2 pages): what the company is, key figures, why it’s an attractive opportunity
• Business Overview (3 pages): history, products/services, value proposition, business model
• Market and Positioning (3 pages): market size, growth, competitors, competitive advantage
• Financial Performance (4 pages): revenue/EBITDA evolution (3-5 years), margins, adjustments, projections
• Operations (3 pages): main processes, infrastructure, suppliers, quality
• Team (2 pages): org chart, management profiles, retention plans
• Clients (3 pages): segmentation, top clients (anonymized), success stories, retention
• Growth Opportunities (2 pages): where the buyer can create additional value
• Next Steps (1 page): sale process, timeline, contacts

Tone: factual, professional, data-driven. Avoid superlatives ("undisputed leader," "revolutionary technology")—professional buyers ignore marketing and focus on numbers.

Step 6.4 — Creation of Pitch Deck (10-12 slides): A summarized version of the IM for the first meeting. Typical slides: (1) company in numbers, (2) what we do, (3) market and opportunity, (4) business model, (5) financial evolution, (6) clients and cases, (7) competitive advantages, (8) team, (9) growth roadmap, (10) next steps. Maximum 15-minute presentation.

Step 6.5 — Preparation of Due Diligence FAQ: Anticipate the 30-40 questions buyers will ask. Prepare written answers with supporting data. Examples: "What is the client churn rate?" (answer: 8% annually, below the sector average of 12%, data attached), "Are there any tax contingencies?" (answer: no, last inspection in 2022 with no findings, report in data room), "Are client contracts automatically renewable?" (answer: 70% yes, 30% require active renewal, list in data room). This FAQ dramatically accelerates due diligence.

Practical example: A distribution company prepared a data room with 850 documents organized into 11 folders. They created a 28-page IM and a FAQ with 45 anticipated questions. When the buyer started due diligence, 80% of questions were already answered in the FAQ. The process closed in 10 weeks (vs. the typical 20-24 weeks). The buyer commented: "We’ve never seen a Portuguese SME so well prepared—that gave us confidence to pay a premium."

Common mistake: Disorganized or incomplete data room. The buyer requests a document, you take 3 days to find it, they assume there are more hidden problems. Every delay feeds distrust and lowers the price.

Cross-Cutting Lever: Legal Preparation and Compliance

What to do: Resolve all known legal issues before starting the sale process. No buyer will close a deal with pending litigation, dubious compliance, or contractual gaps.

How to execute:

Preventive Legal Audit: Hire a lawyer to conduct an internal legal due diligence. Checklist: are all employment contracts compliant with the Labour Code? Are all employees declared? Is intellectual property registered? Are licenses and permits valid? Is GDPR implemented? Are client/supplier contracts signed and filed? Resolve everything before going to market.

Regularization of Intellectual Property: Register trademarks, patents, and domains in the company’s name (not the founder’s). Formalize IP assignment contracts with employees (especially developers, designers). Document authorship of proprietary software/content.

Contracts

Next step: if this topic is relevant for your company, learn about our corporate finance and restructuring solution.

Sources

For further context and validation, consult relevant public and institutional sources on this topic:

• Banco de Portugal – Statistics and Companies
• CMVM – Capital Markets
• IAPMEI – Business Revitalization