Business Exit Planning: A Checklist for Owners

Three or more years out: build the asset

If you're three or more years from an exit, you have time to make changes that materially increase value. These are the highest-ROI items:

Financial foundation:

• Clean up the chart of accounts. Personal expenses should be categorized separately from business expenses, or removed entirely.
• Separate your personal and business finances completely. Different bank accounts, different credit cards, no commingling.
• Move to accrual-basis accounting if you're on cash basis. Buyers and their lenders prefer accrual.
• Engage a CPA who has experience with business sales, not just tax preparation.

Revenue quality:

• Shift revenue toward recurring contracts where possible. Maintenance agreements, retainer clients, subscription services.
• Reduce concentration risk. If one customer represents 25%+ of revenue, diversify before a sale.
• Document recurring revenue separately in your reporting so buyers can isolate it.

Operations and team:

• Hire and empower a general manager or operations lead who can run the business without you.
• Document your key processes. If the business can't function without institutional knowledge in your head, you have a key person problem.
• Reduce owner touchpoints with customers. Relationships should be with the company, not with you personally.

Legal housekeeping:

• Ensure all intellectual property (trademarks, software, domain names) is owned by the business entity, not by you personally.
• Formalize any verbal agreements with suppliers, key customers, or employees.
• Make sure your corporate records (operating agreement, cap table if applicable) are current.

One to three years out: clean up and document

In this window, the focus shifts from building value to making the value visible and transferable.

Financials:

• Prepare three full years of clean P&Ls with an EBITDA add-back schedule
• File all outstanding tax returns and resolve any IRS or state tax issues
• Reconcile your P&L to your bank statements for each year
• Prepare a normalized EBITDA calculation removing owner perks, one-time expenses, and above-market owner comp

Team and operations:

• Complete the org chart. Buyers want to see the management layer below you clearly defined.
• Identify any employees critical to the business and assess retention risk. Who would leave if you left?
• Review employment agreements, non-competes, and benefit programs for any post-close complications.
• If you have employees without formal offer letters, get written employment agreements in place.

Contracts and relationships:

• Audit all material customer contracts. What are the term lengths, renewal provisions, and termination rights?
• Audit supplier agreements. Are there any change-of-control provisions that could cause disruption on a sale?
• Make sure leases have sufficient term remaining for a buyer to operate (at minimum 3 years post-close).

Tax planning:

• Meet with a CPA and an M&A attorney to understand the tax impact of an asset sale vs. stock sale for your specific situation. This affects your net proceeds significantly.
• Understand qualified small business stock (QSBS) exclusions if applicable.
• If you have a family trust or estate plan, confirm the sale proceeds will flow correctly.

Within the year of sale: get deal-ready

In the 12 months before actively marketing the business, focus on being able to respond quickly and professionally to buyer requests.

Prepare your information package:

• Write a two-to-four page confidential information memorandum (CIM) covering: business overview, revenue model, team, financial summary (3 years), and growth opportunity
• Create a blind teaser (one page, no identifying information) for initial buyer outreach
• Prepare a data room: a folder (Dropbox, Google Drive, or formal VDR) with organized financial statements, tax returns, customer contracts, lease agreements, and operational documents

Financial readiness:

• Have your CPA prepare reviewed (or audited for larger businesses) financial statements for the most recent two fiscal years
• Prepare a trailing-twelve-months (TTM) P&L if you're selling mid-year — buyers will want current performance, not just last year
• Build a monthly revenue bridge showing performance over the last 24 months

Legal readiness:

• Engage an M&A attorney before you receive any LOI — not after. Having counsel in place before negotiations begin saves time and money.
• Review your corporate structure for any issues that would complicate a sale (minority shareholders, outstanding options, liens on assets)

Mental readiness:

• Decide your walk-away price before receiving offers. Sellers who haven't decided this in advance are more susceptible to anchoring on the first number they hear.
• Clarify your goals for the deal beyond price: timeline, employee retention, your own post-close role, earnout structure preferences.
• Plan for the emotional aspect. Selling a business you've built is harder than most owners expect.

The financial documents buyers will always request

Every serious buyer will request these documents in due diligence. Having them organized before the process begins saves 4–8 weeks:

• Three years of business tax returns (federal, and state if applicable)
• Three years of profit and loss statements (monthly or quarterly)
• Most recent balance sheet
• Trailing twelve months P&L if selling mid-year
• EBITDA add-back schedule documenting all normalizing adjustments
• Accounts receivable aging report (current)
• Accounts payable aging report (current)
• Revenue by customer for the last 12 months
• Top 10 customer list with revenue and tenure
• Lease agreements for all properties
• Asset list with approximate values (equipment, vehicles, inventory)

What most owners forget until due diligence

These items catch sellers off guard in due diligence and cause delays or re-trade:

• Deferred maintenance they didn't price in. Buyers hire inspectors. A fleet of aging vehicles or HVAC equipment that needed replacement three years ago shows up as a capex deduction from your price.
• Undisclosed customer churn. If your top customer list looked different 18 months ago than it does today, explain why. Buyers will find it in the financials.
• Informal compensation arrangements. A family member on payroll who does little work, a subcontractor who is actually a de facto employee, owner health insurance through the business — all of these need to be documented and disclosed.
• Environmental or regulatory exposure. Particularly relevant for manufacturing, auto services, or businesses that handle chemicals. Any known environmental liability needs to be addressed before a buyer discovers it.
• Intellectual property you don't own. Software built by a contractor with no work-for-hire agreement, a logo designed by a freelancer without a proper license transfer. These come up.
• The landlord conversation. If your space requires a lease assignment or landlord consent for a sale, that landlord has leverage. Have the conversation early — not when a buyer is waiting on a lease assignment.

Building value vs. extracting value: a common mistake

In the final one to two years before a sale, many owners shift from building the business to extracting cash from it. This is rational from a personal finance perspective but destroys deal value:

• Cutting marketing to maximize short-term EBITDA makes the business look profitable but damages future revenue
• Deferring capital expenditure makes cash flow look stronger but creates a post-close capex cliff buyers will discount
• Letting service quality decline to cut labor costs increases churn that shows up in the P&L before closing

Buyers underwrite growth trajectory, not just trailing performance. A business showing declining revenue or expanding customer churn, even with temporarily strong margins, will be valued more conservatively than one showing modest growth and stable customer retention.

The best pre-sale strategy is to run the business as if you're not selling — invest normally, maintain quality, grow the team — while simultaneously cleaning up the financial presentation and documentation.