Founders Exit Plan: 1 Year Before Sale
PREPARE TO GO TO MARKET
With one year to go, it’s time to get sale ready in earnest. This means hiring the professionals to help execute the sale, getting your documents in order, and ensuring the business continues to perform well during the upcoming sale process.
Engage a M&A advisor: If you haven’t already, now is when you’ll typically sign on with an intermediary to help sell the business. Choose an investment banker like Founders Exit Group who has experience in your ideal size. A good advisor will help package your business for sale, approach and vet buyers, and keep the deal process on track. They also act as a buffer in negotiations, which can be invaluable. Interview a few candidates and check references – you want someone you trust, since they’ll be your partner through a complex process.
Finalize your financial records: Ensure you have 3 full years of financial statements ready (e.g. if selling end of 2026, have 2024, 2025, and year-to-date 2026 statements clean and available). If possible, get last year’s financials audited or at least reviewed by a CPA to lend credibility. Prepare current year interim statements and projections for the year. Basically, organize a complete financial package: profit/loss, balance sheet, cash flows, tax returns, AR/AP aging reports, inventory lists, etc. This will all be needed for the sale data room.
Develop the marketing materials: Work with your banker to create a Confidential Information Memorandum (CIM) or sales prospectus for the business. This document (often 20-50 pages) tells the story of your company – history, products/services, market position, customers, financial summary, growth opportunities, etc. It’s the main thing serious buyers will read. Make sure it’s clear, accurate, and selling the future potential as well as past performance. Also have a one-page teaser (anonymous summary of the business) that the broker can use to entice buyers without revealing your company name initially.
Set an initial valuation and asking price: Using input from your advisor and the preliminary valuations you did, decide on an asking price or price range for the business. Be realistic and data-driven – an overpriced business will scare off buyers or drag out the process. Consider current market multiples in your industry and how your company’s growth and risk profile fits. Your goal is to maximize your price, but also to actually get the business sold. (Sometimes it’s wise not to disclose a specific asking price and instead let the market offers dictate; your broker can advise on strategy here.)
Organize legal documents: Compile all important legal documents a buyer might want to see:
Corporate documents (articles of incorporation/organization, bylaws or operating agreement, partnership agreements if any, etc.).
Shareholder or member records, cap table if multiple owners.
Contracts: client contracts, supplier contracts, distribution agreements, NDAs, employment contracts, leases, loan agreements. Review these for change-of-control clauses – identify anything requiring consent to transfer the contract to a new owner.
Intellectual property documentation: patents, trademarks, copyrights, software code documentation – ensure they’re secured and owned by the company.
Permits or licenses needed to operate.
Insurance policies, and any past claim history.
Employee records: at least a summary of roles, tenure, salaries; identify key employees and whether they have non-compete or non-solicit agreements.
Basically, think of it as assembling a thorough due diligence folder.
Continue running the business well: It’s critical that the business performance stays strong during this year. Avoid taking your foot off the gas because you’re distracted by sale prep. In fact, many owners find they need to work extra hard to keep performance up while handling buyer meetings and paperwork. Buyers will closely scrutinize your year-of-sale financials, often up to the month of closing. A dip in sales or profit as you approach the sale can spook buyers or give them leverage to lower the price. So keep executing: hit your sales targets, keep costs in line, and show momentum.
Maintain confidentiality: At this stage, very few people in your company should know you plan to sell (perhaps a CFO or a very trusted COO, if anyone). Work with your banker to approach potential buyers confidentially. Interested parties should sign a Non-Disclosure Agreement (NDA) before receiving detailed info. Maintaining secrecy is important; if word leaks too early, it could unsettle employees, customers, or suppliers. (They might fear instability and seek other jobs/contracts.) So, plan discreet communications. Often, employees are only informed once a deal is nearly finalized. However, you might need to loop in one or two key personnel to help prepare data or to meet buyers; if so, swear them to confidentiality and perhaps offer a retention bonus to keep them motivated through the sale.
Identify potential buyers and begin outreach: By now, your banker will start contacting potential buyers (using that teaser and CIM). They may reach out to companies on your target list, or advertise in marketplaces (anonymously). Be prepared for anywhere from a handful to dozens of interested parties, though many will fall off after initial info. When serious prospects emerge, you may have management meetings where they visit and meet you in person. Prepare for those meetings: put your best foot forward but remain honest. Buyers are looking not just at the numbers, but at the culture and how you present the business’s story.
Start thinking deal structure: All cash up front is ideal, but especially in small business sales, offers might include earnouts or seller financing. Decide ahead of time what you’re comfortable with. An earnout means you get part of the price later, contingent on the business hitting certain targets post-sale. Seller financing means you, as the seller, effectively lend the buyer a portion of the price (they pay you back over time, with interest). These can help close a deal with a buyer who can’t pay full price up front, but they carry risk – if the business underperforms or the buyer fails, you might not get the full payout. You don’t need to publicize your stance, but know your limits so you can negotiate accordingly. Also consider if you’re willing to keep a minority stake if an investor wants you to retain, say, 20% and “ride along” for a second sale later. Talk these scenarios over with your advisor and perhaps your family.
Tax and legal prep: Work with your banker to have your attorney draft or review a letter of intent (LOI) template and key terms so you’re ready when an offer comes. Discuss important points like representations and warranties, indemnification, non-compete agreements, etc., so you understand your obligations in a sale. Also consult your CPA on the tax impact of various deal structures (asset sale vs stock sale, installment payments, etc.). For instance, selling the assets of a C-corp vs selling stock can have different tax outcomes – knowing which is preferable can inform what kind of offers you entertain. Planning now can save a lot on taxes or avoid legal pitfalls.
Plan for life after sale (continued): As the sale gets nearer, start fleshing out your post-sale plans for real. If you’re moving, research locations. If you’re retiring, maybe outline some projects or hobbies you’ll pursue, or plan that long vacation. If you think you’ll start another business, begin exploring ideas (without conflicting with your current business). Having a vision for your next chapter will make the emotional transition easier. It’s common for entrepreneurs to have second thoughts as the sale nears (“Maybe I shouldn’t sell, what will I do every day?”). A clear plan for post-sale life – even if it’s “relax for 6 months then consult part-time” – helps reduce that anxiety.
Emotional readiness: Selling a business can feel like a marathon and an emotional rollercoaster. Prepare yourself for the intensity of the next several months. Due diligence can feel intrusive, and negotiations can be stressful. Remind yourself of your reasons for selling. It might help to talk to a mentor or fellow entrepreneur who has sold a business to set expectations. Also, start coming to terms with the idea that your identity will shift. Many owners feel the business is an extension of themselves; letting go can bring feelings of loss of control or purpose. Acknowledging this now – and even discussing with family or a coach – can brace you for those feelings so they don’t catch you off guard.
Milestone: By the time you’re one year out, the sale process should be officially underway. You have professional help, your documents are ready, and hopefully a few interested buyers are reviewing your business. The business itself is in great shape and still trending upward. You’re mentally and organizationally prepared for the forthcoming negotiations. Essentially, you’ve moved from planning to executing the sale.
