“My Exit Plan involves me being carried out in a bloody coffin”.
This was the ridiculously angry response from my first boss when I asked him if he had an exit plan. I still don’t understand why the question triggered him so much.
Whilst I haven’t had my head bitten off quite like that first time, I have had a whole mix of emotions and responses when I ask founders now what their exit plan looks like.
I get it. Most think of their business like their baby, and the thought of parting ways can be hard to comprehend.
However, building a business that somebody else is willing to pay good money for doesn’t mean you have to sell the business.
The beauty of preparing a business to maximise the valuation means that you create a fantastic company that runs without you, is highly profitable and has minimum stress - who wouldn’t want that?
Not only do you have a great business, but you also now have options! The truth is that despite best-laid plans, sometimes the best time to sell your business is when you least expect it. Having options allows you to maximise any opportunities that come your way.
It can take 3-5 years from the beginning of this journey to really achieve the highest valuation you can for your business.
So let’s explore some of the high-level factors that will help you realise the most value for your business.
Strong Finance system with Clean Numbers
One of the very first things a potential buyer will ask for is a copy of the management accounts. This is not the time to scramble around printing a P+L from Xero; that just won’t cut it!
This is where investing in your finance function really pays off. Demonstrating that your finance function operates with the efficiency of every other department in your business is a big tick on the buyers’ checklist.
You should have regular bookkeeping and monthly management accounts with commentary and KPIs. You should be able to find answers to any questions they fire your way quickly and with a full explanation.
Impressive Financial Performance
Buyers will look for a history of strong financial performance rather than just a one-off good year. They will look over the last three years and often take an average to use in the valuation calculation.
Consistent month-on-month growth is a great sign the business is in top shape and will continue to grow after a sale. If you can’t flatten any peaks and troughs, make sure you have a good explanation for why these occur and what you do to manage this.
Profitability is essential, but consider how a buyer is structuring the deal. Most will borrow money in some form to buy your business. These come with often chunky monthly repayments. Therefore, your business’s cash flow is at the top of the wish list. If the business doesn’t generate enough cash to cover its loan repayments comfortably, it will be hard to come to an agreement - Cash is King!
A forward-looking plan
Anyone buying a business is likely to form their own plan for how to grow the business. However, it installs considerable confidence, knowing that the outgoing owner has a business plan with forecasts moving forward.
Buyers want to ensure you aren’t abandoning the business because you believe it has peaked. They need to believe they can take it forward to grow and improve.
Not all Revenue is Equal
Buyers want peace of mind about the revenue in your business. Recurring revenue is far more attractive and worth more than one-off or project-based income.
If your business is currently made up mostly of non-repeating revenue, find ways to build this into your model.
Even if you do have recurring revenue, what are the notice periods? What does your historical churn show? How much opportunity is there to increase the price? These are all questions I would use to look at the quality of your revenue.
This forms part of the Quality of Earnings (QoE) Report a buyer will likely have prepared for them during Due Diligence - expect this and prepare your business to be as attractive as possible.
Minimise Risk
Buying and selling businesses are inherently risky. There is no way to remove this risk, but you can do everything to understand the risks in your business and minimise those in your power.
For example, look at your Customer Reliance. Do you have customers that make up more than 20% of your revenue? If so, that looks very risky from the outside. How can you spread your revenue over a larger number of customers?
The same principle applies to your suppliers and your team.
Do all of your supplies come from one source? If this fails, what backup do you have? How easy and quick is it to switch to another supplier?
In your team, where does the knowledge sit? It will scare any potential buyer if you have one or two critical people without who the business would struggle.
Systems & Knowledge
A large part of a buyer’s due diligence will be on the business’s operations. What systems and software is it built on, and how reliable and scalable are these?
The other primary consideration in your operations is where the knowledge is stored. Relying on Pete in accounts or Preeti in customer service to know what needs to be done and how processes work is risky.
De-centralise and store your and your team’s knowledge in well-documented playbooks and workflows.
This will give confidence that the business will still function when you are gone, making it much easier to grow.
Your Role
By far, the number one issue stopping more business owners from selling up is the fact that their business does not run without them.
Typically, buyers want to see that this business will run without needing to get stuck into the day-to-day themselves or hire an operator.
Even if you find a buyer who is Ok with your heavy involvement, it will drastically reduce the price they will pay for the business.
What’s your involvement in the business? Do you perform client work? How do your team cope when you aren’t around?
These are basic questions to start you off. When I meet with an owner who tells me they aren’t involved in the business, I will then take it up a level:
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Who makes payments out of the bank?
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Who makes the decisions in the business?
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Could you take a month-long holiday with no communication with your team? If so, prove it!
When I work on the other side, i.e. helping clients buy other businesses, asking the selling owner when they last took a holiday is one of my favourite questions!
A good reason for selling
There could be any number of reasons you are looking to sell the business. Communicating this with potential buyers is essential. They want to feel comfortable that you aren’t doing a runner because of a hidden issue in the business.
Regardless of whether you plan to sell or simply wish to maximise your business’s potential, it’s clear that preparation, transparency, and strategic planning are key.
Building a business that can thrive independently of its founder is not just about increasing its valuation; it’s about creating a sustainable, efficient, and highly profitable entity that will continue to prosper over time. This involves investment in key areas like financial systems, operational processes, and your people. It also means nurturing a business culture that values innovation and adaptability, essential attributes that ensure your business can weather change and thrive in any market conditions.
This is the long game, not a 3 month project.
About the author
Luke Desmond
Fractional CFO for Tech, eCommerce & SaaS. CEO @Crisp_Acc provides virtual finance functions. Co-Founder @getvaulta SaaS Startup for accountants.