Preparation-Only Engagements: A New Revenue Line for Small Banks

The owners a boutique currently says no to

Every managing director knows the conversation. An owner of a $12 million revenue business calls, referred by his CPA. He is thinking about selling in two or three years. He wants to know what the business is worth and what he should fix before then. He is not ready to sign an engagement letter for a sale, and the partner is not ready to spend 300 hours of associate time on a process that may not launch.

The conversation ends with a free hour of advice and a promise to stay in touch. Two years later the owner may call a different bank, a broker, or sell to the first buyer who sends a letter.

Multiply that by the fifteen or twenty such calls a boutique takes in a year and the potential missed revenue line is clear. These owners may be willing to pay for preparation. They are already paying their CPA and their attorney. What they have not been offered is a defined, priced piece of work from the bank that answers their actual question: what is this worth, and what should I do about it.

The reason the bank has not offered it may be cost, not demand. Preparation done by hand is an expensive, associate-heavy, non-contingent piece of work, and the firm's economics are built around contingent fees. That changes when preparation becomes cheaper to produce.

What a preparation-only engagement delivers

A good preparation engagement has four deliverables, and a partner should be able to name them in the first call.

The first is normalized financials. Three years of income statements and balance sheets reconciled to tax returns, with owner add-backs identified and documented. This is the piece an owner cannot do himself and the piece a buyer may eventually ask for. Financial and legal disclosures are standard subjects of investor due diligence, and investors may request information through a checklist [1].

The second is a valuation range with a traced rationale. Not a single number and not a promise, but a range with the inputs visible: the adjusted EBITDA, the comparable set, the multiple logic. An owner who sees why the range is what it is can act on it. An owner who gets a number in a letter cannot. Financial statement analysis can include historical and projected profitability, leverage, liquidity, and related measures, but the appropriate valuation remains a fact-specific judgment [2].

The third is a readiness assessment. The ten or fifteen things a buyer's diligence team may find, ranked by how much each one could cost the owner at closing: customer concentration, an unsigned lease, a key employee without a non-compete, financials that do not tie. Each gets a plain recommendation, subject to the bank's review and the owner's professional advisers where legal or tax issues are involved.

The fourth is a built data room. Organized and indexed, with the documents collected once and in the right place, so that when the owner does decide to sell, some preparation work is already done. A data room is a central repository for legal, financial, commercial, and other company documentation that investors review, and a clean, current structure can reduce friction during diligence [3].

Together these four can take an owner from "I think I might sell someday" to "I know what this is worth, what I need to fix, and what the process will look like." That is a defined service an owner may choose to pay for.

Pricing the engagement so it stands on its own

The mistake boutiques make when they first offer preparation work is pricing it as a loss leader. That trains the owner to see the bank's work as free and makes the eventual sale engagement harder to price.

Price it instead as a fixed fee that covers the firm's cost with a margin, sized to the business. For a lower-middle-market company an illustrative range might run from the low tens of thousands to a figure that reflects the complexity of the financials and the number of entities involved. The fee should be payable in stages tied to deliverables, so the owner sees progress and the bank is not carrying the cost.

The fee only works as a standalone line if the cost side is under control. If the bank's analyst spends 120 hours normalizing financials and building a model by hand, and the associate spends another 60 on the readiness write-up, the fixed fee barely covers payroll. If the same analyst runs the financials through a deterministic valuation engine, has the data room requests go to the owner through a portal rather than a chain of emails, and spends her hours on the judgment calls in the add-backs and the readiness findings, the cost may fall to a point where the engagement earns a margin on its own. The hours and economics are illustrative scenarios, not measured results.

A partner can then offer a credit against the success fee if the owner engages the bank for the full sale within a defined window. That credit is a conversion tool, and it is only affordable because the preparation engagement was profitable in the first place. The bank should set the credit, window, and engagement terms explicitly.

The pipeline effect: preparation is a potential origination channel

The direct fee is one benefit. The other is what preparation may do to the firm's mandate pipeline.

An owner who has paid a bank to prepare his business for sale has made a meaningful choice of adviser and has seen the firm's work product. The first month of the sale process may also be partly complete. When he decides to go to market, that prior work can reduce the amount of new preparation required, but it does not make the engagement letter a formality or guarantee a mandate.

The timing can also be better for the firm. Preparation engagements can be scheduled when the production team has slack, and full mandates can launch when the owner's business is ready rather than when the owner's patience runs out. A partner who runs six preparation engagements a year and converts half of them has a useful illustrative feeder for full mandates. It is not a forecast or a measured conversion rate.

There may be a referral effect too. CPAs and attorneys may be more willing to refer owners to banks that give their clients something concrete. A readiness report the CPA can read and act on may be a clearer reason to refer than a vague promise to "talk when you are ready." The bank should test that proposition with its own referral relationships rather than treat it as an established result.

How to launch the line this quarter

Write a one-page description of the engagement with its four deliverables, a fee range, and a timeline of six to ten weeks. Send it to the five CPAs and three attorneys who referred your last ten owners. Ask them which of their clients are two years from a sale.

Run the first engagement on a business the firm would have turned away as too early. Have the analyst track hours by deliverable. At the end, compare the fixed fee to the cost, and ask whether the owner would have engaged the firm for a full mandate without this work. The answer will set the firm's pricing for the second engagement.

How Acquivo Pro fits

Acquivo Pro makes preparation-only work cheaper to produce and easier for the bank to package. The discovery and readiness phase and the valuation phase run on the same platform as a full mandate: the owner uploads documents once to a branded portal where requests appear, the valuation engine produces a deterministic range across 21 industry verticals with figures that trace to their source, and the data room can be organized before the owner decides to sell. The bank does the assessment and makes every recommendation; the software produces the inputs. Per-seat pricing on a flat monthly subscription means a preparation engagement carries no per-deal cost. To see it on a live mandate, request a demo through the Contact page.