Waiting Until You’re Ready to Sell May Be Too Late
As entrepreneurs, it’s tempting to put off planning our exits because we want to wait until we’re “ready to sell.” The reality for many business owners is that the first offer to buy their business comes in before you expect it. And if you haven’t begun planning intentionally before that moment, you’ll likely find yourself scrambling.
You can’t be “ready to sell” if you haven’t prepared for every aspect of your exit. Starting with the deal itself, the value-building activities you undertake even in the years leading up to a sale can greatly impact the offers you receive. And while the transaction is certainly one of the more important parts of an exit strategy, there are still other components to focus on and prioritize to make sure you’re able to get what you want and need.
The further in advance you define your overall exit strategy, the more likely you are to be able to reap the rewards of what will be one of the most significant financial decisions of your life.
In this article, I share the specific exit strategies and plans we’ve seen work well for the hundreds of entrepreneurs we’ve helped sell their businesses over the years, including where to focus your efforts in the 12-24 months before a sale to make sure you get the maximum value from your efforts.
At least from my lens, if you take even some of these actions in the run-up to your exit, you’ll have gotten yourself significantly closer to being “ready to sell.”
The real cost of not planning your exit
First, since I know from experience that it’s remarkably easy to push even something this important down your to-do list, I want to put a fine point on the very real risks associated with failing to plan ahead for your exit.
Rushing any task is less than ideal, and this is especially true with a complex process like a business sale. Owners who sell without advance planning routinely leave potential value behind.
There are several reasons for this. Hasty sales often attract opportunistic buyers who sense that a seller just wants to accept a deal—any deal. Competition among buyers is what drives up a sale price, which is where your M&A advisor can help.
What’s more, sellers tend to be reactive without a firm strategy in place. By getting organized first and laying key groundwork, they control the narrative and can sway the timeline and terms more effectively.
Exit strategy versus exit plan
It’s important to know the difference between an exit strategy and an exit plan. Simply put, an exit strategy is the “what” and “why,” while an exit plan is the “how” and “when.”
Here’s what I mean:
- An exit strategy defines your end goal, which could be to sell, merge with another company, pass the business to family, or take it public. The strategy also sets out the value you’re aiming for, the cultural fit you want between your business and a buyer, and how engaged you want to be after closing.
- An exit plan outlines the specific steps, timeline, financial prep, and operational changes you’ll make to achieve your strategic goals.
As someone considering selling their business in the future, you need both! A strategy without a plan is formless and vague, while a plan without a strategy lacks criteria for success. Some owners think they’ve defined an exit plan when they’ve really only chosen a preferred outcome—the key is to pair a clear strategy with deliberate planning, preferably well in advance of the endgame.
What having an exit strategy really means
Your strategy will encompass how, to whom, at what preferred valuation, and under what structure you prefer to sell. Naturally, each process is different, and you might need to make compromises on some items, but it helps to have goals outlined.
Here are some of the key components of an exit strategy:
- Benchmarks for personal and business readiness
- Business valuations that would meet your post-deal financial goals
- Identification of your potential buyer universe (with private equity firms and strategic buyers being the most common in the middle market)
- Deal structure preferences (e.g., earnouts, rollover equity)
A good strategy aligns an owner’s personal goals with the market realities of their industry—a good indication of what’s possible is what’s been happening recently in your space, so stay up to date on M&A deals for comparable companies.
How your exit strategy can evolve over time
Not all exit strategies look the same. A strategy built five years before a target close date will be very different from one built eighteen months out.
With a longer runway, owners have the luxury of making structural improvements that meaningfully move valuation: reducing owner dependency, diversifying the customer base, and cleaning up financials. The strategy at this stage is less about transaction mechanics and more about building a business that commands premium multiples.
As you get closer to a transaction—typically within 12 to 24 months—the strategy shifts from value-building to transaction readiness. The decisions you make in this window have an outsized impact on deal structure and final price.
The role of your advisory team in exit planning
A sell-side mergers and acquisitions (M&A) advisor, such as an investment bank, will be your guide through the complicated process of selling your company. But you’ll also need an attorney specializing in M&A transactions, a CPA, and a personal financial planner—a sale will have major implications for your liquidity and tax burden.
Focus on finding your M&A advisor first, because they may have relationships with experienced lawyers, accountants, and wealth planners they can recommend. Interview them about their deal experience, focusing on how they find buyers—advisors who arrange auctions can attract outlier bidders that may prove to be the best fit.
There are, of course, many opinions on the best way to go about this part of the process. My recommendation on the order is based on my and our (Class VI’s) experience with our clients, and what we’ve seen work in most cases.
Immediate actions to strengthen your exit plan
So, besides moving your exit strategy to a place in your to-do list where it will get done, what should you focus on now?
Regardless of timeline
- Reduce owner dependency by shifting tasks to your executive team; buyers want to know that the company doesn’t rely on you too much
- Fix problems with revenue concentration by developing new customer relationships
- Address any deferred legal or compliance matters that could give investors pause
12–24 months before you want to close
- Engage an M&A advisor
- Start working with a financial planner to model post-transaction liquidity and tax scenarios
- Commission a quality-of-earnings assessment to understand how a buyer will see your financials and fix problems before they surface in due diligence
A business sale is what you make of it
Over the many years I’ve spent helping entrepreneurs exit on their terms, I’ve come to see that the owners who achieve the best outcomes are the ones who treat the sale of their business with the same rigor they used to build it.
M&A market conditions—interest rates, buyer appetite, industry multiples—shift constantly, so business and personal timing are more important than market timing. You can ensure your business timing matches your personal timing by starting to plan your exit now, not later.
AUTHORED BY:
Chris Younger | CEO | Class VI Securities, LLC | Class VI Family Office, LLC
Chris co-founded Class VI in 2005 with a mission to Enable the Entrepreneurial Spirit. Sharing a passion for what entrepreneurs mean to our community, Chris and his business partner David Tolson felt they could do a better job for business owners and have had a great time helping clients ever since.
Prior to Class VI, Chris spent more than 20 years gaining experience in executive management, marketing, sales, law, and mergers and acquisitions.