Preparing Your Company for Exit: 18-Month Readiness Plan

The price you get at exit is largely determined by what you do in the 18 months before going to market. Buyers, whether strategic or financial, pay premiums for businesses that are clean, well-documented, growing, and low-risk. This guide provides a month-by-month readiness plan for search fund CEOs preparing for their exit.

Months 18-12: Foundation

Financial preparation

• Audit-quality financials: If you don’t have audited or reviewed financials, start now. Buyers and their QoE firms will scrutinize every number
• Clean up add-backs: Eliminate personal expenses, one-time items, and aggressive normalizations. The fewer add-backs, the higher the credibility
• Stabilize EBITDA: Buyers value predictability. Reduce revenue volatility, stabilize margins, and eliminate one-off costs
• Working capital normalization: Ensure working capital is at sustainable levels. Don’t artificially inflate or deplete it

Operational preparation

• Reduce owner dependency: If you’re still the key person for any critical function, fix it now. Hire, train, and delegate. See owner dependency mitigation
• Document processes: Written SOPs for every major operational function. Buyers value transferable, documented businesses
• Strengthen the management team: Your direct reports should be capable of running the business without you. If any seat is weak, hire now
• Address deferred maintenance: Fix equipment, update technology, complete facility improvements. Don’t leave visible problems for buyers to discount

Months 12-6: Optimization

Revenue quality

• Diversify revenue: Reduce customer concentration. Buyers penalize concentration 1-2x EBITDA turns
• Lock in contracts: Convert month-to-month customers to annual or multi-year contracts. Contractual recurring revenue commands premium multiples
• Grow the pipeline: A strong sales pipeline at the time of exit signals future growth. Invest in sales and marketing
• Demonstrate growth trajectory: Buyers pay for growth. Even modest 5-10% growth significantly impacts valuation

Legal and compliance

• Contract review: Ensure all material contracts are current, assignable, and free of change-of-control termination clauses
• Employment law compliance: Employee handbooks, benefits, classifications, and non-compete agreements should all be current
• IP protection: Trademarks registered, trade secrets documented, employee invention assignment agreements in place
• Resolve pending issues: Settle any outstanding disputes, tax issues, or regulatory matters before going to market

Months 6-3: Preparation for market

Advisory team

• Engage an investment banker/M&A advisor: According to Axial's sell-side M&A data, for businesses above $3M EBITDA a sell-side advisor typically adds 15-25% to the sale price (net of fees)
• Sell-side QoE: Commission your own Quality of Earnings report. This proactively addresses buyer concerns and accelerates due diligence
• Tax planning: Work with your CPA on tax optimization for the exit structure (asset vs. stock sale, QSBS eligibility, installment sale treatment)
• Legal preparation: Your M&A attorney should prepare a data room framework and review all material agreements

Marketing materials

• Confidential Information Memorandum (CIM), your advisor will prepare this
• Management presentation with compelling growth story
• Financial model showing historical performance and credible projections
• Virtual data room loaded with organized due diligence documents

Months 3-0: Go to market

• Buyer identification: Strategic buyers (competitors, adjacent companies) and financial buyers (PE firms, search funds, family offices)
• Controlled auction: Your advisor manages a structured process, teaser → NDA → CIM → management presentations → LOIs → exclusivity → close
• Maintain performance: Do not take your foot off the gas. Revenue dips during the sale process reduce buyer confidence and offer price
• Manage confidentiality: Limit who knows about the sale. Employee and customer knowledge of a pending sale creates uncertainty

Valuation drivers at exit

• EBITDA level: $3M-$5M+ EBITDA commands significantly higher multiples than $1M-$2M, as the Stanford GSB 2024 Search Fund Study shows this is the PE buyer threshold
• Growth rate: Growing businesses sell for 1-2x higher multiples than flat businesses
• Recurring revenue: Contractual recurring revenue adds 1-3x to the multiple
• Customer diversification: No customer above 10% = premium valuation
• Management depth: A business that doesn’t depend on the CEO sells for more
• Clean financials: Fewer add-backs = higher buyer confidence = higher price

The dual-track process

Many experienced search fund CEOs run a dual-track exit process, simultaneously pursuing both a strategic sale and a financial sale. Strategic buyers (competitors, adjacent companies) typically pay higher multiples because they can realize synergies, but the process is less certain. Financial buyers (PE firms, family offices, other search funds) offer more standardized processes and faster timelines. Running both tracks in parallel creates competitive tension that maximizes price while providing a fallback if one track stalls. Your M&A advisor manages this complexity, which is one of the key reasons their fees are justified for businesses above the $3M EBITDA threshold.

Frequently asked questions

How long does it take to prepare a business for sale?

Plan for 18 months of preparation before going to market. Months 18-12: build audit-quality financials, reduce owner dependency, document processes. Months 12-6: diversify revenue, lock in contracts, resolve legal issues. Months 6-3: engage an M&A advisor, commission sell-side QoE, prepare the CIM. Months 3-0: run a controlled auction process. Rushing this timeline typically results in a lower sale price.

What increases the value of a business before selling?

The top value drivers are EBITDA level ($3M+ opens the PE buyer universe), growth rate (growing businesses sell for 1-2x higher multiples), recurring revenue (adds 1-3x to the multiple), customer diversification (no customer above 10%), management depth, and clean financials with minimal add-backs. Addressing these factors during the preparation window has a direct, measurable impact on exit valuation.

Should I hire an investment banker to sell my business?

For businesses above $3M EBITDA, yes. A sell-side M&A advisor typically adds 15-25% to the sale price (net of their fees) by running a competitive process, identifying the right buyers, and managing negotiations professionally. Below $3M EBITDA, the economics are less compelling and business brokers or direct outreach may be more appropriate. See our guide to working with advisors for more detail.

For a complete view of exit options, see our exit strategies guide and investor relations for managing stakeholder expectations during the exit process.