Process Documentation for Acquisition Readiness: A Practical 30-Day Controller's Playbook

Why Process Documentation Is Crucial for Acquisition Readiness

An unexpected M&A inquiry can trigger panic. Suddenly, years of ad-hoc processes, scattered spreadsheets, and institutional knowledge stored in a few key heads must be consolidated into an audit-ready library. This scramble to create standard operating procedures (SOPs) often stalls growth and exposes gaps that become red flags in due diligence. For busy startups, preparing for a company sale is not about building a massive, bureaucratic library. It is about strategically documenting key processes to prove the business is scalable, compliant, and ultimately, a less risky asset for a buyer. This is not a distraction from growth; it is a core part of building a valuable and exit-ready company. For more, see the Acquisition Readiness hub.

From Tribal Knowledge to a Scalable Asset

The most common question is when to start. For most pre-seed to Series B startups, the answer is pragmatic: begin documenting 6-9 months before a planned fundraise or when you start entertaining M&A interest. The goal is not perfection. It is to move from undocumented tribal knowledge to a state of controlled, repeatable operations that someone outside your founding team can understand and verify.

Buyers are not looking for a multi-volume encyclopedia. They are looking for evidence that your financial reporting is reliable and your core operations do not depend on a single person. This is where the 80/20 Documentation Principle applies: focus 80% of your effort on the 20% of processes that buyers scrutinize most heavily, primarily those tied to finance and compliance. It's about building a company, not a library. What founders find actually works is creating a "Good Enough" SOP, which prioritizes clarity and evidence of use over complexity. At this stage, you must document the current, real state of your processes, not a future, ideal state. Acquirers want to see what you actually do. Your existing tools like Google Drive, Notion, and Loom are perfectly sufficient.

Building Your Controller's Playbook: An Efficient Documentation Framework

Instead of creating a scattered library of SOPs, the most effective approach is to build a central "Controller's Playbook." This is a curated, easy-to-navigate guide to your company's core financial and operational procedures, typically housed in Notion or a structured Google Drive folder. This central repository becomes the single source of truth for how your business runs, making the due diligence process dramatically smoother for both you and the potential acquirer.

An example playbook structure might look like this:

• 1.0 Financial Governance
  • 1.1 Month-End Close Checklist
  • 1.2 Revenue Recognition Policy (ASC 606 / FRS 102 Memo)
  • 1.3 R&D Cost Tracking Process
• 2.0 Procure-to-Pay
  • 2.1 New Vendor Onboarding
  • 2.2 Invoice Approval & Payment (>$5,000 Threshold)
• 3.0 Quote-to-Cash
  • 3.1 Sales Contract Approval Process
  • 3.2 Customer Invoicing in QuickBooks/Xero

To build this efficiently, adopt the principle of Process Ownership. The person who does the work documents the work. This avoids top-down mandates that misrepresent how things are actually done. Encourage your team to create "Good Enough" SOPs. A bad SOP is a dense, five-page text document no one reads. A good one is a simple Google Doc with a numbered checklist, a two-minute Loom screen recording showing the steps in the actual software (like QuickBooks or Stripe), and a link to the final report. This is faster to create and far more useful for training and due diligence.

The Due Diligence Hit List: How to Prepare SOPs for Key Scrutiny Areas

Acquirers and investors follow a predictable path during due diligence. They focus first on Tier 1 (Financial) processes to validate the numbers, then on Tier 2 (Operational) processes to assess scalability. Facing red flags when undocumented financial controls reveal compliance gaps is a common and avoidable problem. According to a 2022 survey, 34% of M&A professionals cited accounting issues as a primary reason for deal delays (Deloitte).

Tier 1: Core Financial Processes

These processes are non-negotiable and directly support your company's valuation. Your documentation must be clear, accurate, and consistently applied.

Revenue Recognition

This is often the highest-scrutiny area because it directly validates your top-line numbers. You must prove you report revenue correctly according to local accounting standards. For US SaaS companies, this means explaining your application of ASC 606. Your SOP should show how you recognize subscription revenue from a tool like Stripe over the contract term, not just when cash is received. In QuickBooks, this often involves manual journal entries managed via a spreadsheet. For companies in the UK, FRS 102 standards must be followed. A UK-based professional services firm using Xero would need to document how it recognizes revenue based on project milestones, not just final invoice payment.

R&D Cost Tracking and Capitalization

For tech-heavy companies, documenting R&D is critical for valuation and tax purposes. US-based companies must adhere to Section 174 capitalization rules. A deeptech startup would need a process for tracking developer salaries in QuickBooks Payroll and allocating them to specific R&D projects, often managed in a spreadsheet. UK employers must keep detailed PAYE payroll records and understand HMRC's R&D tax credit scheme rules. A biotech firm in the UK must meticulously track lab consumable costs and staff time in Xero to substantiate its tax credit claims.

The Month-End Close

A documented close process demonstrates financial control and discipline. It proves your numbers are reliable and produced on a predictable schedule. This SOP does not need to be complex; a simple checklist is highly effective.

1. Reconcile all bank and credit card accounts (Checking, Stripe, Amex).
2. Reconcile key balance sheet accounts (Accounts Receivable, Accounts Payable).
3. Record the revenue recognition journal entry based on your policy.
4. Update the deferred revenue schedule.
5. Review and accrue for any large, unpaid expenses.
6. Close the books for the period in QuickBooks/Xero.

Spending Controls and Approvals

Buyers look for financial discipline. A documented approval process for significant expenditures shows that spending is controlled and predictable. A common threshold for vendor approval is $5,000. Your SOP can be as simple as: "All vendor invoices over $5,000 require email approval from a founder before being scheduled for payment in QuickBooks or Xero." This demonstrates clear lines of authority and prevents unauthorized cash outflows.

Tier 2: Key Operational Processes

While secondary to financial controls, these operational SOPs show that the business can run and grow without the founders' constant intervention. A scenario we repeatedly see is a chaotic handoff between sales and delivery, which signals execution risk to an acquirer and raises questions about future revenue stability.

Sales-to-Service Handoff

Documenting this flow proves you can onboard new customers efficiently and consistently, which is essential for scaling. A simple visual flowchart in Miro or Lucidchart works well. It could show how a "Closed-Won" deal in Salesforce or HubSpot automatically triggers the creation of a customer folder in Google Drive, a kickoff call checklist for the implementation team, and a shared Slack channel. This process is critical for reducing churn and protecting the revenue an acquirer is buying.

Common Documentation Pitfalls and How to Avoid Them

Lacking time and expertise often leads to common mistakes that undermine the documentation effort. Understanding these pitfalls is the first step toward avoiding them.

1. Documenting an Imaginary Future State: The most frequent error is writing SOPs for how you wish a process worked. Acquirers value transparency. An honest representation of your current operations, including its flaws, is more trustworthy than an aspirational process you do not actually follow. Document what you do today.
2. Waiting for the Perfect Tool: The search for a sophisticated documentation platform often becomes a form of procrastination. The practical consequence tends to be that nothing gets documented at all. A shared Google Drive folder or a Notion workspace is more than enough to get started and see you through an acquisition.
3. The "Set It and Forget It" Mindset: Documentation is not a one-time project. Processes evolve as your company grows. Assign owners to key SOPs and implement a simple quarterly review to ensure they remain current. A note on each document tracking the last review date is sufficient.
4. Isolating Documentation to Finance: While financial processes are the priority, a buyer is acquiring the entire business. Operational processes like customer onboarding, sales handoffs, and hiring are part of the company's value. Involve team leads from across the business to document their key workflows.

Your 30-Day Action Plan to Prepare SOPs for an Acquisition

Getting started does not require a massive project. You can make significant progress toward acquisition readiness in the next 30 days by focusing on high-impact actions.

Week 1: Establish a Home Base and Owner

Choose your central repository for the Controller's Playbook, whether it is a new folder in Google Drive or a workspace in Notion. Nominate one person, perhaps a founder or an operations lead, to be the project owner. Their job is to organize and facilitate, not to write everything themselves.

Week 2: Document the Month-End Close

Ask the person responsible for closing the books to record a Loom video of their screen as they perform the process. Have them list the main steps in a simple Google Doc and embed the video link. This is your first 'Good Enough' SOP.

Week 3: Draft Your Key Accounting Policies

Write two simple, one-page memos. The first should explain how you recognize revenue. For a US-based e-commerce store using Shopify and QuickBooks, this might be: "We recognize revenue upon shipment of goods, as recorded by Shopify, and reconcile payments from Stripe daily." The second should cover R&D. For a UK deeptech firm, it might state: "We track all R&D-related software subscriptions and contractor invoices in Xero with the 'R&D' tracking category to support our HMRC claim."

Week 4: Formalize Your Spending Authority

In your playbook, create a one-page document titled "Spending Approval Matrix." Start simply: "All non-payroll expenses over $5,000 require written email approval from [Founder Name] before payment is issued." This simple document provides clear evidence of financial control.

This approach transforms process documentation from a defensive, overwhelming task into a proactive way to build a more valuable, resilient, and sellable company. It provides the proof an acquirer needs to move forward with confidence and clarity. Explore more Acquisition Readiness resources to continue building your exit strategy.

Frequently Asked Questions

Q: How detailed do SOPs need to be for an early-stage startup?
A: Focus on clarity and evidence, not volume. An SOP should be detailed enough for a new team member to follow the steps and achieve the correct outcome. A simple checklist combined with a short screen recording is often more effective than a lengthy text document. Aim for "Good Enough," not a perfect encyclopedia.

Q: What is the difference between a policy and a process document (SOP)?
A: A policy is a high-level document that states the "what" and "why" of your rules, like a Revenue Recognition Policy explaining how you apply ASC 606. An SOP is a tactical, step-by-step guide that explains "how" to execute that policy, such as the checklist for the month-end close journal entries.

Q: Who should be responsible for creating and maintaining these documents?
A: The person who does the work documents the work. This ensures accuracy. While an operations lead or founder can own the overall Controller's Playbook, the individuals performing the tasks should create the initial SOPs. Assigning owners and scheduling quarterly reviews keeps the documentation current.

Q: Should we buy dedicated software to manage SOPs before an acquisition?
A: For most early-stage startups, this is unnecessary and can be a distraction. Tools you already use, like Google Drive, Notion, or Confluence, are perfectly adequate for building an audit-ready playbook. Focus on creating the content first; you can migrate to a specialized tool later when your team exceeds 50 people.