Founder exit guide
Founder exit guide
Overview
Exit readiness means having the evidence a buyer will ask for before they ask for it. This checklist covers the six areas every buyer of a UK software business tests, and what good looks like in each.
Most of the value lost in a software sale is lost before the process starts. The buyer asks for a number, the founder produces it from memory or from a spreadsheet that does not reconcile to the accounts, and the price moves. Readiness is the work of making sure that every number a buyer will test has one source, one owner and one answer.
The checklist below is written for founders of UK B2B and vertical software businesses between roughly £1M and £10M ARR, where the finance function is usually small and the founder is still close to the customers. It is a working list rather than a legal one. Lawyers and accountants will add their own, and should.
Done properly, this takes 12 to 24 months, mostly because some of the evidence, such as a clean retention history or a second layer of management, has to be built rather than assembled. The earlier it starts, the less it costs.
The checklist
Work through them in this order. The first three decide the price, the last three decide whether the deal closes.
An ARR cube with build by customer, by product and by month, reconciled to the invoiced revenue in the accounts. Clear and consistent definitions of what counts as recurring, what is services and what is one off. Price increases, discounts and multi year prepayments shown separately so a buyer cannot mistake timing for growth.
Gross and net revenue retention by cohort, calculated the way a buyer will calculate them rather than the way that flatters you. A list of every lost customer in three years with the reason. Logo churn and revenue churn kept apart, because a buyer will separate them anyway.
Customer concentration by revenue, with the top ten contracts to hand. Every contract on your paper or theirs, with term, notice period, break clauses, change of control provisions, novation rights (whether the contract can be transferred to a buyer) and price caps listed in one schedule. Any customer who could walk on completion identified now, not in week six of diligence.
An organisation chart that shows who runs the business when you are not in the room. Named owners for sales, delivery, product and finance. Employment contracts, option schemes and bonus arrangements in order, and a view on who the buyer will need to retain and what that will cost.
Monthly management accounts that tie to the statutory accounts. A clean cash position, a working capital history, and adjustments to EBITDA (earnings before interest, tax, depreciation and amortisation) that a buyer will accept. Where it pays for itself, a vendor quality of earnings review before the buyer commissions their own.
Intellectual property owned by the company, not by a founder or a contractor. Open source usage listed with licences. Data protection registrations, privacy policies and security certifications current. A cap table with no surprises, and shareholder agreements that allow the sale you intend to run.
When to use it
A buyer does not pay for what you tell them. A buyer pays for what you can prove.Why the evidence matters more than the story.
FAQ
Usually 12 to 24 months if done thoroughly. Assembling documents takes weeks, but building a clean retention history, a second layer of management and a finance function that reconciles takes longer. Starting late is the most common reason a sale process produces a lower price or no deal.
The ARR build and the retention numbers, because those two decide the multiple. A buyer will rebuild both from the invoicing data and compare them with what the information memorandum says. Any gap between the two sets the tone for the rest of the diligence.
Not always, but where the business is above a few million in ARR or the expected buyer is private equity, a vendor quality of earnings review and a light commercial vendor due diligence usually pay for themselves. They find the problems while you still control the timetable and the narrative.
Everything in the six areas above, organised so a buyer can find each item without asking. Financials, the ARR cube, customer contracts, employment documents, intellectual property records, policies and certifications, and the corporate records. A well built data room shortens diligence and reduces the number of questions that turn into price chips.
A single customer above around a fifth of revenue will be priced as a risk, through a lower multiple, an earn out or a specific indemnity. Buyers will want to speak to that customer. Knowing the relationship is solid, and being able to show a contract that survives a change of control, limits the damage.
Yes. Corinium Advisory works with founders on readiness ahead of a process, from a one off review of the six areas to a longer engagement that fits the founder's timeline. It is independent of any adviser, bank or fund and paid by the founder. See the founder exit page for how the work runs.
Read next
The main guide: thinking, preparing and executing a sale, partial liquidity, growth equity or succession, with independent, founder paid help at each stage.
Selling a software businessAn earn out defers part of the price and makes it conditional on performance after completion. It bridges a valuation gap, and it is where founders most often lose money they thought they had agreed.
Earn Outs When Selling a Software BusinessThe two kinds of buyer pay for different things, structure the deal differently and want different things from you afterwards. Knowing which you are talking to changes how you prepare and what you should ask for.
Selling a Software Business to Private Equity vs TradeContact