The Phase Founders Underestimate
Introduction
You have an offer you're pleased with. You've signed Heads of Terms — the outline agreement that sets out the main deal points but binds neither side to complete — and with it, exclusivity: a commitment not to talk to other buyers while the buyer does its work. It feels like the hard part is over.
It isn't. The stretch between Heads of Terms and completion is where UK SME deals lose value or collapse, and it is the stretch founders prepare for least. The market backdrop makes this sharper. Buyers are paying up for quality but underwriting harder than they did a few years ago: risk sensitivity has risen, diligence has become more thorough, and buyers want to go both faster and deeper. In a selective market, deals where the financial information is under-prepared or the earnings story is loosely argued are precisely the ones that stall or fall away.
This guide covers the four things that break in that phase — price, paperwork, time and people — and what to do about each before you go to market.
The Price Moves When the Story Becomes Data
Once exclusivity begins, the buyer stops evaluating a presentation and starts re-underwriting a business. Three mechanisms move the number, and you should expect all three.
First, your normalised earnings — profit adjusted for one-off or owner-specific costs so a buyer sees the true run-rate — get tested, and adjustments you can't evidence get rejected. Second, a working-capital target is set: the normal level of operating cash the business needs to run. Deliver the business below that level and the price falls pound for pound. Third, net debt and anything debt-like is deducted from the top.
This is ordinary diligence, not bad faith. But it explains why the figure in the offer and the figure that completes are rarely the same. The defence is evidence prepared in advance, not argument improvised under pressure.
Insight: A single rejected earnings adjustment, multiplied by the valuation multiple, can move the price by six figures. The time to test your add-backs is before a buyer's accountant does.
The Data Room Decides More Than You Think
Most of the buyer's working hours between Heads of Terms and completion are spent inside the data room — the organised file of contracts, accounts and records their advisers examine. Every gap becomes a question; every inconsistency becomes grounds to ask for more, and often for a lower price. A mismatch between your management accounts and your model is enough for a buyer to reduce the price, and a poorly prepared data room routinely costs both timeline and value.
Four recurring problems do most of the damage:
- Change-of-control clauses. Customer or supplier contracts that let the other side terminate or renegotiate if the business is sold. A single significant contract with this term can prompt a price reduction or a delayed completion until consent is secured.
- Unassigned intellectual property. Where a founder, a former colleague or a contractor created core assets without formally assigning ownership to the company. A buyer cannot pay full value for something you can't prove you own. This is common and, found late, expensive.
- Unsigned or incomplete share-scheme paperwork. An employee option scheme set up but never properly executed will be spotted quickly and can prevent completion until it is fixed, sometimes requiring shareholder consent.
- Undisclosed disputes. Even a minor, settled matter looks worse discovered than disclosed. Left out, it can convert into a warranty claim after completion — a claim that the business was not as your contractual promises described.
Insight: None of these is usually a new problem. They are old, untidied details that didn't matter until a buyer's lawyer read them. Diligence doesn't create problems; it reveals them, at the point when you have least flexibility to fix them.
Time Works Against the Seller
Exclusivity removes your strongest card — the prospect of walking to a better buyer — for its duration. From that point, time favours the party with more of it, and that is the buyer.
Long diligence breeds deal fatigue, and fatigue produces concessions. There is a recognised balance: for SME transactions, a diligence period of roughly 45 to 60 days tends to combine thoroughness with momentum. Shorter, and the buyer cuts corners they will want to revisit; much longer, and energy and goodwill drain away, usually to the seller's cost. Delay also signals risk: a seller who answers slowly and scrambles for documents reads as a business that isn't in control of itself, which invites exactly the scrutiny that erodes price.
The lever you control is readiness. Answers prepared before Heads of Terms keep the process short, and a short process protects your position.
Insight: Speed in diligence is not administrative tidiness. It is value protection. The preparation that lets you answer in days rather than weeks is the same preparation that holds your price.
The Failure Mode That Isn't on Any Checklist
The most common late-stage collapses are human, not financial. Emotional attachment to a business you built. An unspoken difference over post-sale involvement — how long you stay, how much you control, whether your brand survives. A breakdown in trust between two sides who were, until recently, aligned.
These rarely appear suddenly. The issues that derail a deal late were usually visible at Heads of Terms and left unsaid, because early in a process everyone is agreeable and the hard specifics feel postponable. They are not. They surface once money and momentum are committed, when they are most dangerous and hardest to resolve.
Insight: Decide your own non-negotiables before you go to market — your minimum acceptable number, your maximum tie-in, what you must retain control of — and raise the ones that affect the buyer at Heads of Terms. An awkward early conversation is cheaper than a failed late one.
A Pre-Market Checklist
Preparation done before a buyer is in the room is what separates a deal that completes near its agreed price from one that erodes or dies. Work through the following before you go to market:
- Evidence every earnings adjustment. For each add-back, hold the proof a sceptical accountant would demand. Remove any you couldn't defend.
- Build the data room early. Assemble the standard diligence list in advance and run a mock review over contracts, IP and employment records with your solicitor. Fix issues with no buyer watching.
- Define the mechanics in Heads of Terms. Pin down how working capital is calculated, which adjustments are agreed, and — where part of the price is deferred or tied to an earn-out, meaning you're paid later for hitting set targets — exactly how those targets are measured and over what period. Earn-outs typically run one to three years, and vague metrics are the leading cause of post-completion disputes.
- Settle your own position. Write down your red lines and disclose the ones that affect the buyer early.
One timing note. The Business Asset Disposal Relief rate — the reduced rate of Capital Gains Tax on a qualifying business sale — rose to 18% on 6 April 2026, the third rise in two years, with anti-forestalling rules that stop you signing early purely to lock in an older rate. A tax deadline can tempt you to rush. A rushed process is the one that breaks in diligence. Let the tax position shape your planning, not stampede it.
Conclusion
The offer is a milestone, not the outcome. What converts it into completed proceeds is the work most founders skip: evidenced numbers, a clean data room, defined terms, and an honest reckoning with what you want from the sale. Done before you go to market, that work turns diligence into confirmation rather than erosion.
If you have an offer or are entering buyer conversations, this is where founder-side preparation pays for itself — readying you for the intensity of a live process before it starts, alongside your corporate finance, legal and tax advisers and on your side of the table.
Sources referenced include UK corporate-finance and legal market commentary and HMRC guidance, 2025–2026.
About Exit Strategy & Solutions
Exit Strategy & Solutions is a specialist advisory firm helping UK SME owners build optionality, maximise value, and reduce risk through strategic exit planning and execution.
Our approach combines deep market intelligence, strategic positioning expertise, and an unwavering focus on protecting your interests at every stage.
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Disclaimer
This article is provided for informational purposes only and does not constitute legal, tax, or regulated investment advice. Examples cited are based on composite scenarios for illustrative purposes. Exit Strategy & Solutions is not responsible for decisions made based on information in this article.
