How Smart Business Owners Plan Their Exit — Protect the Bag Before You Cash Out

1. Discounted Cash Flow (DCF)

When Appropriate: Mature businesses with stable cash flows and forecasting ability.

Pros:

• Captures intrinsic value
  
  

• Adjusts for the time value of money
  
  

Cons:

• Highly sensitive to discount rate and long-term projections
  
  

• Significant forecasting risk
  
  

Key Inputs & Data Gathering:

• Historical cash flows (audited financials)
  
  

• Revenue & expense projections (management forecasts)
  
  

• Discount rate / WACC (market data, bond yields, company beta)
  
  

• Terminal value assumptions (peer multiples or perpetuity growth rates)
  
  

 

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2. EBITDA Multiple

When Appropriate: Profitable companies in sectors with active M&A markets (tech, services).

Pros:

• Simple and fast
  
  

• Uses a normalized earnings measure
  
  

• Easy to compare across peers
  
  

Cons:

• Ignores capital structure and cap-ex
  
  

• Multiples vary widely by industry
  
  

Key Inputs & Data Gathering:

• Adjusted EBITDA (P&L add-backs for one-time items)
  
  

• Comparable-company multiples (public comps via Capital IQ, PitchBook)
  
  

 

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3. Comparable Sales (Precedent Transactions)

When Appropriate: Industries with recent M&A deals of similar size and profile.

Pros:

• Reflects real market pricing
  
  

• Accounts for control premiums
  
  

Cons:

• Transaction data may lag
  
  

• Deal terms often differ
  
  

Key Inputs & Data Gathering:

• Transaction values and financial metrics (M&A databases: Bloomberg, DealRoom)
  
  

• Deal dates, synergies, transaction structures
  
  

 

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4. Asset-Based Valuation

When Appropriate: Asset-heavy businesses (real estate, manufacturing) or distressed situations.

Pros:

• Provides a floor value based on liquidation
  
  

• Objective, tangible assets
  
  

Cons:

• Ignores future earnings potential
  
  

• Undervalues intangible assets
  
  

Key Inputs & Data Gathering:

• Book values (balance sheet)
  
  

• Market appraisals for real estate, equipment
  
  

• Working capital adjustments
  
  

 

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5. Market Approach / Market Capitalization

When Appropriate: Publicly traded companies or divisions comparable to listed peers.

Pros:

• Immediate market valuation
  
  

• Reflects liquidity and investor sentiment
  
  

Cons:

• Subject to market volatility
  
  

• May capture non-operating elements
  
  

Key Inputs & Data Gathering:

• Public share price × outstanding shares
  
  

• Enterprise value adjustments (add debt, subtract cash)
  
  

• Peer group selection (industry codes, revenue size filters)
  
  

 

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Buyer-Preparation Checklist

Financial Clean-Up

• Audited/reviewed financials (last 3 years)
  
  

• Clean tax filings, no unresolved IRS/state notices
  
  

• Reconciliation of bank accounts and ledgers
  
  

Operational Documentation

• Standard Operating Procedures (SOPs) for all key functions
  
  

• Employee contracts, offer letters, non-competes
  
  

• Organizational charts, roles, responsibilities
  
  

Legal Due Diligence

• Customer, supplier, lease agreements
  
  

• IP documentation (patents, trademarks, copyrights)
  
  

• Corporate formation documents, bylaws, meeting minutes
  
  

Commercial Agreements

• Key customer contracts, renewal schedules
  
  

• Supplier agreements (pricing, volume terms)
  
  

• Joint-venture or partnership agreements
  
  

 

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Negotiating Terms & Structures

Purchase Price Allocation & Earn-Outs

• Allocation: Split between tangible assets, goodwill, and intangibles (for tax).
  
  

• Earn-Outs: Link price to future performance (clear revenue/EBITDA metrics).
  
  

Payment Structures

• Upfront Cash: Paid at closing
  
  

• Deferred Payments: Scheduled installments
  
  

• Escrow Holdbacks: Cover indemnity claims
  
  

Non-Competes & Seller Financing

• Define duration and geography
  
  

• Set interest rate and repayment terms if seller-financed
  
  

Tax-Efficient Structures

• Asset Sale: Buyer steps up basis; seller may face double taxation (C-Corp)
  
  

• Stock Sale: Simpler for seller; buyer inherits liabilities
  
  

 

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Succession Planning Framework

Successor Identification

• Evaluate internal candidates (performance, leadership potential)
  
  

• Define external hire criteria
  
  

Governance Changes

• Establish board of directors/advisors
  
  

• Define management roles pre- and post-transition
  
  

Training Timelines

• 0–6 months: Job shadowing, knowledge transfer
  
  

• 6–12 months: Gradual handover
  
  

• 12–18 months: Full control transition
  
  

Communication Plan

• Announce to employees, customers, suppliers
  
  

• Host Q&As, provide regular updates
  
  

 

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Professional Advisors & Roles

 

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Risk Mitigation & Contingencies

 

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Timeline & Milestones (12–18 Months)

 

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Post-Exit Transition

• Relationship Handover: Introduce successor to clients, vendors; share contacts.
  
  

• Knowledge Transfer: Document workflows, conduct training, record processes.
  
  

• Seller Involvement: Define consulting period (6–12 months) with deliverables.
  
  

• Earn-Out Monitoring: Establish reporting, dispute-resolution steps.
  
  

 

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Market & Buyer Landscape (2025 Trends)

Valuation Multiples

• Strategic buyers paying 8–12× EBITDA
  
  

• Financial buyers paying 6–8× EBITDA (mid-market)
  
  

Deal Volume

• Mid-market deals rebounded +15% in Q1 2025
  
  

• Tech and healthcare leading sectors
  
  

Buyer Motivations

• Strategic: Acquire tech, market share
  
  

• Financial: Yield, exit within 3–5 years
  
  

Red Flags

• Overly complex ownership structures
  
  

• Customer concentration >30%
  
  

 

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Success Metrics & Lessons Learned

Financial Metrics

• MOIC: Exit proceeds ÷ equity invested
  
  

• After-Tax Proceeds: Net cash to seller post-tax
  
  

Operational Metrics

• Retention Rates: Client, employee retention (6–12 months)
  
  

• Revenue Stability: LTM revenue comparison pre- and post-exit
  
  

Feedback Loops

• Stakeholder surveys (buyers, employees, customers) at 3 and 12 months
  
  

• “Lessons learned” debrief with exit team to capture best practices