Start with the question buyers will ask
Every buyer, strategic or financial, ends up asking the same thing: what exactly am I buying, and will it still be there in three years? The preparation year is about being able to answer that question with evidence rather than conviction.
For a software company, the evidence is a small number of metrics tracked consistently over time: recurring revenue and its growth, gross and net retention, gross margin, customer concentration, and the cost of acquiring a customer against the revenue that customer brings. If these numbers exist but are computed differently every quarter, they will be recomputed by a buyer's advisors, and rarely in the seller's favour.
Clean the numbers before you tell the story
Financial due diligence is where processes slow down. The most common findings are not frauds but inconsistencies: revenue recognised at invoicing rather than over the contract, capitalised development costs that a buyer will treat as operating expenses, intercompany flows that blur the margin, one-off items presented as recurring.
Twelve months out is the right moment to decide, with your accountants, how revenue is recognised, what is capitalised, and what a normalised EBITDA looks like. A vendor due diligence is not always necessary at this size, but a clean monthly reporting pack with a reconciled bridge to the statutory accounts is. It turns a two-month diligence into a three-week one.
Contracts, code and people
Three things are checked on every software deal and are slow to fix once the process has started. Customer contracts: change-of-control clauses, auto-renewal terms, uncapped liabilities, and the share of revenue under contracts that expire within a year. Intellectual property: that the code is owned by the company, that open-source licences are compatible with a commercial product, and that former contractors have assigned their rights. People: that key engineers and sales leads are retained, that equity or bonus schemes do not trigger unexpected payments on a sale, and that the organisation does not depend on the founder for every decision.
None of these are deal-breakers. All of them are price-negotiation material if a buyer discovers them first.
Decide what you are selling
A company is sold on a story about its future, not on its past. The preparation year is when that story is tested: which segments grow, which products carry the margin, where the next three years of growth come from, and what a buyer with more capital or more distribution could do with the business.
This is also when a founder decides what kind of transaction fits. A full sale to a strategic acquirer, a majority sale to a sponsor with a reinvestment, a minority round to finance growth: each attracts a different buyer universe and a different process. Choosing early avoids running a process that attracts the wrong offers.
Timing and confidentiality
Markets move, but most companies are sold when they are ready rather than when the market is perfect. A business with eighteen months of clean, growing numbers behind it is in a stronger position than one launched in a hot market with figures that need explaining.
Confidentiality is the other practical constraint. Few people inside the company need to know about a process before the second round. Preparing the materials with a small group, and deciding in advance who is told what and when, protects the business while the process runs.
What can wait
Not everything needs to be perfect. A buyer expects a mid-market software company to have some technical debt, some customer concentration and some gaps in management. What they do not expect, and what costs money, is to discover these things themselves after an offer has been made. The preparation year is about knowing your own company at least as well as the buyer will.
The best sale processes are decided in the year before they start.