Exit Strategies: A Three-Part Series

Part Two: The Exit Checklist for Business Owners

In this article series, Harris Williams Managing Director Bill Watkins, the firm’s specialist in advising family-owned businesses, shares his insights on preparing to sell your business.

The initial article covered the five key issues that have the potential to disrupt a transaction and how to address them. Part two of the series provides a checklist of nine critical things owners must do to prepare to sell before that day comes. 

Use this nine-point checklist to avoid leaving things to chance and surprising potential buyers and investors late in the sales process.

As discussed in part one of this series, selling a business can be challenging. Preparing early to address difficult questions about the company’s growth, business model and financial performance, as well as industry dynamics and the relevant regulatory environment, can make the sales process much smoother.

First-time sellers, in particular, may feel a bit overwhelmed by the process. To help you prepare for the event, here we explore nine key things you need to do upfront to lay the groundwork for a successful transaction (see Figure 1). All are critical to the process, and must be addressed concurrently to avoid surprises that can stall or derail the deal at the 11th hour.

Figure 1: Nine-Point Exit Checklist 


Identify your motivation for selling and goals for your life after the sale

At the very beginning, you should start with a blank sheet of paper and write down what’s important to you. Think about your lifestyle and what you hope to do after the sale. Do you want to stay at the company in some capacity and help it achieve its growth targets? Start another company? Focus on philanthropic pursuits and charity work?

The answers to these questions will have a big impact on the type of buyer you’ll seek. “If you believe you’ll need all cash to achieve your post-sale goals, more often than not you’ll require a strategic buyer or a quasi-strategic buyer—i.e., a private equity firm with a platform company,” says Watkins. “On the other hand, if you’re thinking you want to stay involved with the business and maintain an equity stake in it, you’re more likely going to be dealing with a private equity partner.”

Clearly lay out why your company is different and worth acquiring

While you may know intuitively what makes your company special, you have to be able to articulate it in a way that will resonate with potential buyers and investors. Thus, you need to make sure you have a clear and compelling story about why your company is a good investment or purchase.

Why does your company exist in the first place?

Think about the company’s purpose—not its mission statement, but why it exists in the first place. What needs does it address or problems does it help solve for customers—and how does that translate into customer loyalty? Also, describe how the company stands out from its competitors. Does it offer a truly unique product or service? Does it have a technology that no other company has that gives it special capabilities? Does it have a strong innovation engine that enables the company to continually reinvent itself and stay ahead of new trends and customer expectations? The answers to these questions will heavily influence buyers and investors’ view of how valuable the company truly is.

Ensure you have the people the company needs in the right roles

Every owner of a growing business knows that people are vital to success. But does your company really have all the right people it needs to be most attractive to buyers and investors? An important exercise is to review your organizational chart and just think out loud: “What are we missing?” The answers can be enlightening. 

You may, for example, find that you have a great chief operating officer, but she’s doing too much. To keep her thinking strategically, you might need to hire a vice president to handle the supply chain and another to look after manufacturing. Or you could determine that your chief financial officer, while capable of producing sound financial reports, may not be able to answer questions from sophisticated private equity investors or large corporate buyers in a way that will help maximize the company’s value. Or you could realize that you’ve been getting by without a true chief technology officer so far, but the importance of technology to today’s business now requires you to have one.

As part of this organizational assessment, consider creating incentives that encourage people to stay through the transition—for example, some type of incentive or stay bonus that allocates compensation to key talent.

“Certainly, it’s money out of the owner’s pocket,” observes Watkins. “But it’s a way to create more of a sense of teamwork and commitment to the process. These incentives also show your awareness of the natural anxiety key executives feel during a liquidity event.”

Put together a team that can fully answer all due diligence requests

A key part of the sales process is due diligence, in which potential buyers seek information they need to evaluate the potential upside and downside of the acquisition. During this process, buyers will ask many questions of the company. The first and most important questions are generally contextual and qualitative in nature, which help buyers get a better understanding of what’s behind the quantitative data (e.g., revenues, costs and number of customers and suppliers) you will provide potential interested parties. Some common types of questions or requests you might hear are:

  • Help me understand your relationships with your top 10 customers, how they’ve changed over time and how you expect they’ll change in the future.
  • Talk about your growth plan in more detail and why you think it’s achievable.
  • Describe how you performed through the last downturn, and explain how you think you’ll perform in the next one—and why.
  • Tell me what makes your company truly different from your competitors and what it does to stand out in the market.

It’s virtually impossible for one person to handle all due diligence requests a seller will receive, particularly when that individual is the leader of the company. Therefore, you’ll need to put together a very strong and capable team of people—that typically includes, at minimum, the heads of sales, marketing, operations, HR and finance—to provide the answers. The number of team members and their specific roles can vary depending on a company’s circumstances and its industry.

Importantly, this team should be supported by strong financial systems that enable team members to access and slice critical data as necessary to rapidly respond to requests. Quick turnaround is especially valuable as you get closer to the end of the process. During this phase, the sense of urgency heightens, the seller must maintain momentum and the timeframe to respond gets shorter.

Create an achievable growth plan with management

Your company’s cash flow and margins are definitely important to strategic buyers and investors. But even more important is how you plan to grow the business—especially today, when market equilibrium is yielding double-digit EBITDA multiples across many sectors. You’ll need to be prepared to explain in detail to prospective buyers how you plan to grow and how you’ll generate your revenue—by product, service, customer and market. Also consider pulling together a realistic budget for the current year.


Be ready to explain in detail how you plan to grow the business.

If you are promising organic growth, you’ll have to describe the source of that growth: doing more business with existing customers, diversifying the customer base, expanding geographically, pursuing service or channel extensions, or rolling out a steady stream of innovative new products. If your anticipated growth also includes acquisitions, you must be able to tell a strong story about your acquisition pipeline and, even more important, be able to describe your track record in successfully executing past acquisitions (including a few compelling case study examples).

Whatever your growth plan is, it needs to be achievable and credible. “When you think about financial projections, you don’t want to put something in front of a group of investors that is just pie in the sky, because that immediately hurts your credibility and puts you on your heels,” says Watkins.

You also may want to consider commissioning a market study, by a recognized independent third party, as an input to your growth plan. Such a study provides rich data that can help your growth plan stand up to buyer and investor scrutiny. These studies typically look at market size and fragmentation, overall market growth, customer needs, major competitors and possible threats to the business, and key themes and trends—all points that could influence your ability to achieve your growth goals. These studies can also help facilitate the early foundation of an acquisition plan and targets, thereby advancing your growth strategy.

Review the status of your top customer and supplier relationships

Buyers and investors will want to know a lot about your customers—after all, that’s where the money comes from. You should be prepared to discuss key aspects of your customer base, including the following:

  • How diverse is your customer base (geographic regions, channels, types of companies)?
  • How concentrated is your business with customers (do you get most of your revenue from a small group of customers)?
  • How sticky are your customer relationships (how difficult would it be for them to leave)?
  • How dispersed are the people you sell to (do you typically sell to a single corporate buyer or to decision makers in individual facilities, such as multiple plants or regions)?
  • What does your sales pipeline look like for the next 18 months, and what external factors could influence it?

Depending upon your industry, supplier relationships are typically less critical to buyers and investors, unless your company relies heavily on a handful of them or on relatively unique inputs. If a major supplier is no longer able to provide a key material or part, it could become cause for concern. Powerful suppliers can also be challenging, possessing the ability to raise prices or control supply at will. If these scenarios sound familiar, you should be able to demonstrate your fallback options—alternative suppliers that can step in and fill the gap.

Review the condition of your facilities

In some ways, selling your business is similar to selling a home. Just like a home seller may engage in improvement projects before listing and even stage the house to present it in the best possible light, you’ll want to make sure your facilities look as good as possible. That could be as simple as walking through the plant or office during hours of operation to confirm it’s clean, tidy and safe.

You also may want to consider proactively conducting a phase-one environmental assessment to confirm your facilities comply with relevant regulations, including ones you may have assumed as part of an acquisition. Yes, it will cost money, but it’s money well spent. Beyond generally helping you remain a good steward of the business, such an assessment can head off surprises that could scupper a sale.

Another important dimension of a facilities review involves growth and maintenance capital expenditures. You’ll need to demonstrate that you either have capacity to handle projected growth, or that you have a capital plan for building that capacity. And you should be able to produce a detailed five-year history of both growth and maintenance capital investments you’ve made in your facilities, which will help investors and lenders better understand the cash flow dynamics of the business.

Track and understand potential add backs and adjustments

As mentioned in the previous installment of this series, “add backs” are a potentially contentious issue to which most savvy buyers and investors pay a lot of attention.

In general terms, add backs in a founder- or family-owned business are anything appearing on the income statement that are characterized as one-time or non-recurring charges for which an investor would not be responsible after purchasing the business. Typically these expenses are related to existing ownership and their respective management of the business, but they could also include inventory charges or certain expense accruals.

Almost as important as traditional add backs—which can positively or negatively affect earnings—are pro-forma adjustments to your financial results. Examples could include the full-year benefit of a recent acquisition, credit for recent customer wins, and new branch or retail location openings.

Buyers and investors will pay a lot of attention to add backs.

Add backs and adjustments can have a big impact on the value of the company, which is why you need to identify all of them and begin tracking them on a regular basis well in advance of the sale process. And when it comes time to begin negotiations with potential buyers and investors, you’ll need to be able to clearly explain what they are and your rationale. Importantly, identifying the issues in advance of the sale process enables owners to correct any potential issues, and put in place policies and procedures to improve shareholder value in the long run.

Lastly, and to be taken seriously by buyers and investors, it’s critical to engage a qualified, independent firm to validate your add backs and pro-forma adjustments. If a transaction is expected within the near term, this should take the form of a quality of earnings (Q of E) report. “A founder-backed or family-owned business going to market for the first time without a Q of E report is generally a non-starter in the current market environment,” Watkins observes.

Confirm your status on key legal and regulatory matters

A whole host of legal and regulatory issues could make a sale more complicated if they’re not identified and dealt with in advance. You should identify, and be prepared to discuss, any meaningful contracts, change-of-control provisions, outstanding liabilities and licensing requirements that could influence the value of your business or make it more difficult for you to exit.

For example, are you comfortable with the stage of your union contract’s lifecycle? Do any family members have buy-sell agreements that need to be considered? Are there provisions within licensing agreements that allow customers to review—and potentially cancel—their license in the event of a change in ownership?

Similarly, you need to confirm your company’s status with regard to regulatory compliance to ensure you comply with all relevant laws, policies and regulations, and that you’re up to date on all required permits. “While it likely would take a major issue in this area to derail a potential sale, doing your own due diligence on compliance up front will help you flag areas of concern—which is also valuable even if you don’t end up selling,” says Watkins.


Selling your business can be exciting—as well as complicated and time-consuming. And it can be full of potential pitfalls if you’re not prepared. Using this checklist can help you gather the information you need to have productive and informative discussions with potential buyers and investors, as well as anticipate the questions they likely will ask. And it can enable you to tell a positive, credible story about your business, which can help demonstrate the company’s value.

“It takes a lot of work to ready your business for a sale and get potential buyers and investors interested,” Watkins notes. “You don’t want to overlook anything that can complicate your exit and slow process momentum. Going through the core undertaking of preparation and discovery helps you learn more about your overall business and options, which can help the company today and drive value in the long run.”

Interested in learning more? Email us here if you would like to be among the first to receive future installments of Exit Strategies: A Three-Part Series.

This article is one in a three-part series.

Part One: Five Considerations for Business Owners

Part Three: Giving Diligence Its Due

Published March 2019