---
title: Building Toward Exit
summary: Exit-readiness is not about selling; it is about making the business sellable and better-run.
est_minutes: 20
sort: 5
---

Exit-readiness isn't about wanting to sell. It's about making the business sellable. The same factors that make a business worth buying are the factors that make it well-managed.

By the end of this module you'll have an Exit Readiness Score across 10 factors, a 24-month plan to close gaps, a Data Room outline, and an estimate of current exit value.

**The 10 Readiness Factors**

**1. Financial cleanliness.** Clean GAAP-style books. 3 years of trailing financials. No commingled personal/business expenses. Reviewed (not just compiled) by an external CPA.

**2. Recurring revenue %.** What % of revenue is contracted, multi-month recurring. Higher = more valuable.

**3. Customer concentration.** Top customer as % of total revenue. Below 15% is healthy. Above 25% is a buyer concern.

**4. Growth rate.** YoY revenue growth, ideally sustained and not lumpy. 20–40% YoY is healthy. Lumpy growth (50% one year, 5% the next) reduces multiple.

**5. Gross margin.** Stable % over 3 years. Margin expansion is a positive signal.

**6. EBITDA margin.** Stable %, improving. EBITDA is the primary basis for most operator-business valuations.

**7. Documentation depth.** Pillar 3 deliverables. SOPs. Org chart. Operating reviews. Without this, the buyer assumes operator-dependency.

**8. Team independence.** Can the business run without the operator for 30 days? 90 days?

**9. Customer satisfaction.** NPS, renewal rate, referral rate. These translate directly into the buyer's risk assessment.

**10. Legal cleanliness.** Contracts in order, IP assigned (not in personal name), no pending litigation, clean cap table.

Each scored 0–10. Total max: 100.

**How Buyers Think**

Buyers don't value the business you have. They value the business they'll have post-acquisition. That's a critical distinction.

If your business is heavily founder-dependent, the buyer is buying a future where the founder is gone — and they discount accordingly.

If your business has 50% revenue from 1 customer, the buyer is buying the risk that customer leaves — and they discount accordingly.

If your books are messy, the buyer is buying due-diligence costs and surprises — and they discount accordingly.

**The buyer always discounts what they can't verify or what they have to fix.** Your exit-readiness work is preventing those discounts.

The typical multiple ranges for operator businesses (EBITDA-based):

- Service business, founder-dependent: 1.5–2.5× EBITDA
- Service business, well-documented: 3–5× EBITDA
- Service business with significant recurring revenue: 4–7× EBITDA
- SaaS or recurring-heavy business: 5–10× EBITDA (sometimes higher)
- High-growth SaaS: 8–15× revenue (different methodology)

Moving from 2.5× to 5× on a $300K EBITDA business is the difference between $750K and $1.5M at sale. That's the value of exit-readiness.

**The Scoring**

Run the scoring honestly. Most operators score 40–60 of 100 the first time.

| Score | Status |
|-------|--------|
| 0–40 | Not exit-ready; 24–36+ months of work needed |
| 41–60 | Foundation present; 18–24 months to ready |
| 61–80 | Close; 6–12 months of focused work |
| 81–100 | Exit-ready now |

The lowest-scoring factors are your priorities. They're also where the biggest multiple-expansion lives.

**Common lowest-scoring factors:**

- Documentation depth (most operators score 3–5)
- Recurring revenue % (most operators score 4–6)
- Customer concentration (often 4–6 because top customer is 20–35%)
- Financial cleanliness (most operators have commingled or compiled-only books)
- Team independence (most operators can't be gone 30 days)

**The 24-Month Plan**

Once you've scored, build the 24-month plan by quarter:

**Q1–Q2 (Months 1–6): Foundation**
- Get books cleaned and reviewed
- Document the top-10 SOPs (Pillar 3 if not done)
- Calculate true customer concentration; build diversification plan
- Audit contracts and IP assignment

**Q3–Q4 (Months 7–12): Operating Improvements**
- Migrate any customers to multi-month recurring agreements (where possible)
- Build the management team you'll need to run without you
- Improve EBITDA margin through pricing review (Module 2.3) and cost discipline
- Run a 30-day operator-absence test

**Q5–Q6 (Months 13–18): Refinement**
- Get to 3 years of clean financial history
- Address remaining customer concentration
- Build the data room (outline + materials)
- Optionally engage exit advisors

**Q7–Q8 (Months 19–24): Pre-Sale Process**
- Final data room polish
- Engage M&A advisor / banker
- Begin buyer outreach (if selling within 6 months of M24)

Each quarter has specific deliverables tied to the 10 factors.

**The Data Room**

Whether you sell in 2 years or never, building the Data Room outline now creates discipline.

The Data Room has 8 sections:

1. **Corporate** — entity docs, cap table, governance
2. **Financial** — 3 years P&L, balance sheet, cash flow, quarterly cuts
3. **Commercial** — customer list with revenue (anonymized), churn, NPS, contracts
4. **Operations** — SOPs (Pillar 3), org chart, key vendor list
5. **People** — employee/contractor list, comp ranges, key role definitions
6. **Legal** — contracts (sample + master), IP assignment, any litigation
7. **Marketing & sales** — pipeline reports, channel performance, marketing assets
8. **Tech** — tech stack inventory, systems documentation, any custom IP

Most operator businesses have ~30% of this assembled today. The exit-readiness plan brings it to 95%+.

**Exit Value Estimate**

For a rough valuation today:

| Step | Calculation |
|------|-------------|
| 1. TTM EBITDA | Trailing 12-month EBITDA |
| 2. Pick multiple range (from Module 4.5 ranges) | 1.5× – 7× depending on factors |
| 3. Apply readiness adjustment | -20% to +20% based on Exit Score |
| 4. Value range | Low and high |

Example:
- TTM EBITDA: $250K
- Multiple range (well-documented service business with some recurring): 3–5×
- Readiness adjustment: -10% (score of 50/100)
- Value range: $675K – $1.125M

This is rough. Real M&A valuation involves deeper analysis. But the rough estimate is useful to understand where you are.

**What To Do Right Now**

Five things:

1. **Run the 10-factor Readiness Score.** Section A. Honestly.

2. **Identify the 5–7 lowest-scoring factors.** Section B. They're your priorities.

3. **Build the 24-month plan** by quarter (Section C).

4. **Outline the Data Room** sections you can build now (Section D).

5. **Estimate current exit value** (Section E). Document the range.

Take the quiz.

I'll see you in Module 4.6 — M&A Mechanics — where we cover deal structures, earn-outs, escrow, and the specifics of what an actual sale process looks like.
