Founders Exit Plan: 2 Years Before Sale
BUILDING VALUE AND TEAM
Two years away from your target sale, focus on optimizing the business and assembling resources. By now you should feel comfortable that you do want to sell in the next couple years. This is when you make the business as attractive as possible, like staging a house before listing it.
Drive growth and profitability: Value is often a multiple of your earnings, so increasing those earnings before sale pays off. In these two years, prioritize initiatives that boost revenue or profit without taking on new long-term risks. For example, expand into that new market if it significantly ups your growth trajectory – but avoid completely reinventing the business model this late in the game. Show consistent, ideally growing, financial performance that a buyer would pay a premium for.
Keep cleaning up financials: By now you want absolutely accurate financial statements and reports. Consider getting a formal audit or a quality of earnings review done by an external accounting firm. It’s better you discover and correct any discrepancies now than a buyer finds them later. This level of financial transparency will impress serious buyers and reduce surprises. Also, continue to report all your business income on tax returns (if you’ve been “expensing” a lot of personal stuff through the business, now’s the time to stop) – buyers and banks will look at tax returns to validate earnings.
Diversify and solidify the business: Continue addressing the risk factors:
If you rely on a few big clients, work hard to diversify your customer base so that no single customer represents an outsized portion of revenue. If that’s not possible, consider locking in long-term contracts with those key clients to give a buyer reassurance those revenues are secure.
Strengthen relationships with secondary suppliers or have backup suppliers, so you’re not vulnerable to one vendor. Buyers will evaluate customer and vendor concentrations when assessing risk.
Build a strong middle management layer. Identify rising stars among your staff and involve them in higher-level operations. The goal is a self-sufficient team. If you plan to have someone internally take over as general manager, this is the time to groom them.
Ensure your products or services have a stable pipeline. For instance, if you have projects extending into next year, a buyer sees future income. A full sales pipeline or backlog can be a selling point.
Organize and professionalize operations: Pretend a potential buyer could drop in unannounced – would they find a well-oiled machine or controlled chaos? Aim for the former:
Streamline processes: Increase efficiency where you can. If there are any lingering operational inefficiencies you’ve tolerated, address them. Maybe implement that new software system for inventory or customer management so the business is modernized.
Spruce up your facilities/appearance: Much like curb appeal in real estate, a neat, orderly business premise or well-structured digital workspace creates a positive impression. Two years out, invest in maintenance: repair that leaky roof, update signage, ensure your website is polished and up-to-date. It signals pride and that the business doesn’t have hidden neglect.
Maintain quality and compliance: Don’t let quality slip while preparing for sale – in fact, double down on quality control. Document compliance with industry regulations, as buyers will ask.
Strengthen your professional advisory team: Start identifying experts who will assist in the sale:
A CPA or financial advisor experienced in business sales can help with financial prep and tax planning.
A business attorney familiar with mergers & acquisitions (M&A) or small business transactions should be looped in to advise on legal readiness (they can flag any legal cleanup needed now, and be on deck for the sale process).
An M&A advisor like Founders Exit Group who specializes in your size of business. You might not formally hire one yet, but get to know who the reputable players are. By knowing your options now, you can move faster when it’s time to go to market.
Preliminary buyer research: Without formally “shopping” the business, you can quietly research or even cultivate potential buyer prospects. Are there competitors who have expressed interest in an acquisition? Are there related businesses that would benefit from your customer base or technology? Keep a list. If appropriate (and very discreetly), you might even have feeler conversations through intermediaries to gauge interest. Don’t publicize that you’ll sell, but being aware of your buyer universe helps later.
Solidify your exit strategy decision: By the 2-year mark, try to narrow down your likely exit path. For example, if you’ve decided you prefer selling to an outside buyer rather than family, you’ll focus on making the company attractive to outsiders (and maybe gently ensure family members know so they can plan their own futures). Or if you’ve decided on an insider sale (management buyout or family succession), begin structuring that (perhaps start discussing financing with them, or a gradual share transfer). Knowing your direction will inform the specific preparations needed.
Personal financial planning: This is a good time to loop in your personal financial planner (or get one). Discuss what a successful sale looks like for you financially – “How much do I need to net from the sale to achieve my retirement or next-phase goals?” This helps set a realistic target sale price. Also, explore tax strategies: for instance, if you anticipate a large capital gain, are there steps now to mitigate taxes? Sometimes strategies like gifting shares to family or a trust, or moving to a more tax-friendly state, need to be done well in advance. Coordinate with your CPA on these. Additionally, if you have business-related investments (company owns real estate, etc.), decide whether you’ll sell those with the business or separately retain them.
Emotional check-in: With two years to go, start preparing mentally for letting go. It might feel far off, but time flies. Talk with trusted mentors or peers who have sold businesses about their experiences. Involving your spouse or family in these talks is crucial – ensure everyone is on the same page about the plan. This period is often when excitement builds (“We could get $X million and be set!”) but also anxiety (“What will I do after? Is this the right decision?”). By acknowledging those feelings now, you’ll be more prepared later.
Milestone: By the end of the second year-before phase, your business should be running at peak health and largely not dependent on you for every little thing. Ideally, you’ve increased its value through stronger earnings or mitigated risks. You should also have key advisors ready and a clearer idea of who your likely buyer might be. Essentially, you’re poised to start the actual sale process by the end of this phase.
