Here's a scene I've watched play out three times this year. A founder gets an offer for the business they've spent a decade building. The number is exciting. The broker is optimistic. Then the buyer's accountants arrive, and the questions start. Why does the gross margin move around so much? Where's the stock count? Can you explain this marketing spend? What's the actual EBITDA, once you take out the one-offs?

Six weeks later the price has moved. Sometimes a lot. Not because the business got worse. Because the financials couldn't stand the weight of a stranger's questions.

I'm a specialist ecommerce accountant. My firm works with UK DTC and marketplace brands from £1m to £20m, and a big part of what we do is get brands ready to sell, or rebuild their finance function when a sale is already falling apart. Raising money and selling are different games. Investors buy a story with upside. Buyers buy your future cash flows, and they price the risk in your past numbers. The test is tougher than anything an investor runs.

This post is about what that test looks like. Start this eighteen months before you sell, not eighteen days.

Here's the Short Version

  • Buyers value your business on adjusted EBITDA, then spend weeks checking every adjustment you claimed
  • The quality of earnings report is where deals get repriced, and most founders have never seen one
  • Ecommerce has its own diligence list: channel reconciliations, platform reporting, stock, settlement cash
  • Your tax position decides how much of the price you keep. Business Asset Disposal Relief is 18% on your first £1m of lifetime gains, and it needs a two year run up
  • You can't fix five years of books in five weeks. Most founders leave it too late

What the Buyer Is Actually Buying

Here's the mental model that changes everything. A buyer doesn't pay you for what you've built. They pay for what they can take out of the business over the next five to ten years, minus the risk that it won't happen.

That's why the conversation always lands on EBITDA, earnings before interest, tax, depreciation and amortisation. It's a rough measure of the cash the business throws off before the owner's financing and tax choices muddy the picture. The buyer applies a multiple to it to get an enterprise value, then cash, debt and working capital adjustments turn that into the price you actually receive. We'll come to those. But the multiple conversation is where deals are won and lost.

Two things follow, and sellers underestimate both. The multiple is set by the risk in your numbers, not by how hard you worked: clean, boring, reconcilable financials earn a better multiple, messy ones get discounted because the buyer is pricing the work they'll have to do and the surprises they think are hiding. And every pound of EBITDA is worth five pounds of enterprise value at a five times multiple, which is why add-back arguments get so heated and the quality of earnings report is where the gap opens up.

The Quality of Earnings Report: Where Deals Get Repriced

A quality of earnings report, usually called Q of E, is the buyer's accountants going through your last two or three years line by line, answering one question: how much of this profit is real, and how much will still be here after you've gone? They do it before they commit to a price. It's the most important document in your sale, and most founders never hear of it until it lands with findings attached.

Here's what they test, in plain English:

  • Revenue quality. Is growth coming from repeat customers, or from discounting and paid campaigns that stop the day you leave? They split revenue by channel, by cohort and by product line
  • Gross margin. They rebuild it from your fee stacks and cost of goods, month by month. Unexplained drift is a red flag, not a talking point
  • Recurring versus one-off costs. The question on every line: would a new owner have to keep paying this?
  • The owner's touch. Your salary, your car, the family payroll. They price it in either way
  • Working capital. How much cash does the business need to run? More than you think, usually

Here's the uncomfortable part. The buyer's accountants aren't trying to prove you wrong. They're building a number they can defend to their own investment committee. Clean books: that number is your number, and the deal moves fast. Messy books: they build it from scratch, and people building from scratch are conservative. Every judgment call goes against you.

That's the whole game. Messy books don't just lower the multiple. They hand every disputed line to the other side by default.

Add-Backs: Where Prices Get Argued Down

Most sellers prepare an adjusted EBITDA number, usually with their accountant, by adding back one-off costs to the reported profit. Some of those are legitimate. The fight starts when the add-backs stop being one-off. Here's a typical argument, with numbers.

Say your reported EBITDA is £1.1m and the normalisation schedule looks like this:

  • Founder salary above market rate: add back £60,000. A new owner won't pay you £120,000 to run a £4m brand
  • One-off brand campaign for a discontinued product line: add back £90,000. Defensible, it's finished
  • Legal costs from a settled dispute: add back £25,000. Also finished

That gets you to £1.275m of adjusted EBITDA, and most buyers accept that version, because each line is demonstrably over and demonstrably one-off.

Then comes the add-back that kills more deals than any other in ecommerce: the growth marketing that didn't work. You spent £300,000 testing new channels, creatives and markets, and most of it failed. You want it back. It was exceptional. It won't happen again.

The buyer's answer: marketing is a recurring cost of running a DTC brand, and some of it failing is normal, not exceptional. They won't add it back. The multiple conversation gets stiff, and the price conversation moves on.

Do the arithmetic and you'll see why this matters. Your version: £1.575m of adjusted EBITDA. Their version: £1.275m. At five times, that's a £7.875m enterprise value against £6.375m. A £1.5m gap, opened by one disputed line.

The test for every add-back is simple, and you should run it before the buyer does. Is it over, with evidence? Is it genuinely non-recurring? Could a stranger look at the paperwork and agree within five minutes? If the answer to any of those is no, take it off your own schedule first.

The Ecommerce-Specific Checks

General businesses get general diligence. Ecommerce gets the specialist treatment, because buyers have been burned before and they know exactly where the bodies are buried in a DTC finance function.

Channel reconciliations

If you sell on TikTok Shop, Amazon or Shopify, the buyer will expect your books to tie to the platform records, and they will test it. Payouts, fees, refunds, chargebacks, settlement reserves. They know that brands which book net payouts hide their fee costs inside the sales line, and what that does to gross margin. We wrote the full guide to reconciling platform reporting at £1m+, because this is the most common structural problem we find, and it's a deal problem, not just a bookkeeping problem.

There's a second reason. TikTok Shop and Amazon report your seller data to HMRC every year, by 31 January for the previous calendar year. The report uses calendar year payment data, so it won't match your accounts line by line. But it has to be explainable from your books: a gap that looks like undeclared sales is exactly the kind of mismatch that gets a return looked at more closely.

Stock

Stock is the asset most likely to be wrong, and buyers know it. They'll ask for the last physical count, the aged stock report and the valuation method. Stock sits at the lower of cost and net realisable value. If you have £500,000 of stock on the balance sheet and £120,000 of it is slow moving lines you'll have to sell below cost to shift, your asset is overstated and your profit with it. The buyer writes it down in their working capital model, and the price comes down with it. If you use a 3PL, the numbers need to reconcile to the warehouse. We've seen brands lose six figures in a sale negotiation over discrepancies a routine count should have caught.

Cash in the settlement pipeline

If you sell on TikTok Shop or Amazon, you will always hold a chunk of cash inside their settlement cycles. TikTok Shop holds money across delivery-based periods and performance reserves. Amazon holds settlement balances. That cash is working capital, not profit, and it doesn't sit in your bank account. If your management accounts don't show it, the buyer's accountants will re-model it from the platform data, and you want your version to match theirs.

Channel concentration

This one isn't in the accounts, but it sets the multiple. If 80% of your revenue comes from one Amazon account or one TikTok Shop, the buyer sees a business that could lose half its revenue to a policy change or a suspension. They will discount the multiple or ask for an earn-out, where part of the price pays out only if the revenue survives after completion. The fix is strategic, not financial, and it belongs on the exit checklist early.

The Balance Sheet Tells Them How You Run the Business

Most ecommerce sales are priced on a cash free, debt free basis with a normalised working capital peg. Plain English: the headline number values the trading business itself. Surplus cash comes out to you before completion, any debt is settled by you, and the final price adjusts against a target level of working capital set in the sale agreement. Three things trip sellers up, and all three are fixable before you market the business.

Director loans. If you've borrowed from the company, you owe the company money, and that loan has to be cleared before completion. Buyers will not take on a company whose seller is still a debtor on the balance sheet, because collecting it after the deal becomes their problem. And if the loan is still unpaid more than nine months and one day after the year end, the company faces a tax charge of 35.75% of the loan, the rate that applies to loans made from April 2026. A £70,000 loan means a £25,025 tax bill, and it's a line every buyer's accountant recognises instantly. Clear it before the data room opens.

Intercompany and management charges. If you run a group, or you charge your own brands management fees, the paperwork has to exist: agreements, invoices, evidence the charge is defensible. Charges that appear and disappear at convenient moments are how profits get moved around, and buyers read missing paperwork as deliberate.

Owner personal spending. The car, the meals, the family travel. Some of it is in the accounts and some of it isn't, and the difference is a tax problem, not just a diligence problem. Clean it up properly, with the tax paid where it's due. The buyer's accountants will find it in the bank statements, and a seller who looks like they're hiding things is a seller whose other numbers get re-checked.

Tax: BADR Is an 18% Rate With a Two Year Clock

Now the part that decides how much of the price you actually keep. When you sell your shares, you may owe capital gains tax on the gain, and there are two rates in play.

Business Asset Disposal Relief, BADR, cuts the rate on qualifying gains to 18% for disposals from 6 April 2026. It was 14% between April 2025 and April 2026, and 10% before that. If you've been waiting for the old rates, they aren't coming back. The relief covers the first £1m of lifetime gains per person. Above that, you pay the normal rate, which for most founders selling a business of any size is 24%.

Run the numbers: £1m of gains taxed at 18% instead of 24% saves six pence in the pound, £60,000 per founder. If you and your spouse or civil partner both hold qualifying shares, that's two allowances and £120,000 saved between you. That's why share structure decisions from years ago matter more than anything your accountant does in the sale year.

Here's the part sellers miss. BADR is claimed on your tax return for the year of sale, but the conditions have to be met for two years before it, so it's not a relief you can switch on in the sale year. You need to be an employee or officer of a trading company throughout that period. For most founders the critical test is the personal company rule: at least 5% of the shares and voting rights, plus an entitlement to at least 5% of the distributable profits and assets on a winding up, or of the disposal proceeds. And if you dropped below 5%, the relief is at risk. There's an election that can preserve it in some dilution cases, but it has to be planned at the time, so check the position before you hand out equity, not after.

EMI options have their own timing. If your shares come from an EMI scheme, the two year clock runs from when the option was granted, not when you exercised it. That's a planning opportunity if you're early: grant options now and the BADR clock starts before you own the shares. The scheme limits from April 2026 are generous, £120m of gross assets, fewer than 500 employees and £6m of options outstanding, with £250,000 per person. We covered EMI and share structures properly in our post on founder finance: paying yourself, share structure and R&D claims, because this is where founders make the mistakes that cost six figures at the exit.

Then the compliance box. Buyers check your Companies House history and your tax filings before they get near a term sheet. Accounts are due nine months after the year end, and late filing penalties for a private company run up to £1,500, doubled for a repeat offence. A filing history full of late marks reads as a company that treats deadlines as optional. It takes thirty seconds to check, and it colours everything else they find.

And your corporation tax position needs to be current and defensible, with no surprise liabilities in the cupboard. A six figure tax bill you've never provided for is not a buyer problem, it's a price problem: the buyer will simply reduce what they pay. Sort it before you go to market, not after the heads of terms are signed.

The 24-Month Countdown

  • 24 months out. Get a monthly close that closes. Balance sheet reconciliations, accruals, proper cut off, every month, with a named owner. Our 12-step monthly accounting checklist is the practical version, and it's the foundation everything else sits on. If you don't have someone who can run a close, this is the moment to hire them. We wrote about when you need a controller rather than a bookkeeper, because at £5m and above the difference is the whole game
  • 18 months out. Reconcile every channel back to the books, and keep them reconciled. TikTok Shop, Amazon, Shopify, payment gateways, the lot. Count stock, age it, and write down the slow movers now, while it's just prudence, not a pre-sale surprise. Review your share structure and EMI scheme against the BADR tests. Fix the director loan and the intercompany paperwork
  • 12 months out. Build the financial story: channel level profitability, the EBITDA normalisation schedule with evidence files for every add-back. Run a mock due diligence on yourself. Ask your accountant to attack the numbers the way a buyer's Q of E team would, and fix what they find
  • 6 months out. Prepare the data pack and go to market with a broker. Two case studies show what this looks like. We prepared a pioneer ecommerce brand in the stoicism market and it sold for roughly double what the founder expected, because the buyer could actually see the value. And we rebuilt the finance function of an American supplement brand mid-exit after the buyer's questions exposed five years of unreliable financials, and the eight figure deal still completed. Read both, and ask yourself which story yours would be

FAQ

How long before selling should I get the financials ready?

Eighteen to twenty four months, if you want the full benefit. The BADR clock alone needs two years, and a proper monthly close takes months to build and prove. Six months is enough to fix obvious problems. Six weeks is enough to lose money on the multiple.

My books are a mess. Can I still sell?

Yes, but you'll sell at a discount, or you'll carry an earn-out, or the deal will stall while the buyer's accountants rebuild your numbers their way. We've seen the rebuild route work: the eight figure supplement brand completed its exit after we reconstructed five years of financial history on a proper accruals basis. Messy books are fixable. The question is whether you fix them before the sale, and keep the value, or after, and give it away.

Do I need audited accounts to sell?

Not automatically. You're exempt from audit as a small company if you meet at least two of three tests: turnover of £15m or less, a balance sheet of £7.5m or less, and 50 employees or fewer. A buyer can still ask for an audit if the deal size justifies it. What every buyer needs is accounts they can rely on, a lower bar than an audit and a much higher one than most sellers realise.

Is it better to sell shares or assets?

Most private company sales in the UK are share sales, because that's what buyers of a going concern usually want, and it's the route that lets you use BADR on your gain. Asset sales happen when a buyer won't take on the company's history or liabilities, and the tax treatment is very different: the company pays tax on the sale, and you pay again to get the money out. If a buyer asks for an asset deal, take specialist advice before agreeing to anything.

What is a working capital peg?

It's the agreed level of stock, debtors and creditors the business needs to run normally, set in the sale agreement. On completion day your actual working capital is measured against it. Above the peg, you get paid more. Below it, the difference comes off the price. Sellers lose money here when their stock number is fiction, because the buyer controls the count and the valuation methodology.

The Bottom Line

Nobody sells a business on the day they decide to sell it. The sale is decided years earlier, in the monthly close nobody noticed, the stock count that kept slipping, the channel reconciliation that never quite tied out. Buyers don't price what you tell them. They price what they can verify, and they discount everything they can't. The fix is known, boring and entirely within your control: close the month properly, reconcile the channels, count the stock, clear the loans, check the share structure against the BADR tests, and run the numbers the way a buyer's Q of E team would, two years before they arrive.

If you're thinking about selling in the next two years and you're not sure your financials would survive a buyer's scrutiny, we can review the finance function first and tell you exactly what a quality of earnings team would find, and what it would cost you in price. We're specialist social commerce accountants, we work with UK brands from £1m to £20m, and we've taken brands through this exact process. Book a call and we'll take it from there.