Thread by @NathanHirsch99

How to Setup Your Business for an Exit (My Playbook)

I sold my company in 2019.

The process takes time.

Most founders start too late.

They leave millions on the table.

They scramble when buyers show up.

Your exit starts the day you launch.

Here's the exact playbook I used:

I. Strategic Foundation (3-5 Years Out)

1/ Define Your Exit Goals

Why? Align all efforts with end goals (e.g., sell to PE, competitor, or employees)

How: "Do I want cash upfront? Legacy preservation? Ongoing involvement?"

2/ Build a Scalable Model

Fix: Shift from owner-dependent to systems-driven (e.g., documented SOPs, autonomous teams)

Metric: ≥80% of operations run without founder input.

3/ Triple Recurring Revenue

Fix: Convert project work to subscriptions (e.g., retainers, SaaS-like contracts)

Target: 70%+ revenue from recurring sources.

II. Financial Optimization (2-3 Years Out)

1/ Audit Financials Rigorously

Fix: Hire a forensic accountant; clean up balance sheets, cap tables, and tax filings.

Must: EBITDA margins >20% (industry-dependent).

2/ Diversify Revenue Streams

Fix: Reduce key client risk—no single client >15% of revenue.

3/ Cut "Add-Backs" Drama

Fix: Document discretionary expenses (e.g., family salaries, luxury travel) as "add-backs" to boost EBITDA.

III. Operational Excellence (1-2 Years Out)

1/ Document Everything

Fix: Create a "Data Room" with:

- SOPs 📁
- Customer contracts 📑
- IP assignments 🔐
- Compliance records 🏷️

2/ Strengthen the Leadership Team

Fix: Hire a seasoned COO/CFO; tie their equity to post-exit retention.

3/ Secure Key Relationships

Fix: Lock in supplier/partner contracts; ensure client agreements are transferable.

IV. Exit Execution (6-12 Months Out)

1/ Engage Advisors Early

Who: M&A attorney, investment banker, tax strategist.

Cost: 5-10% of deal value—but pays for itself in premium valuation.

2/ Run a "Structured Auction"

Process:

- Identify 50+ potential buyers (strategics, PE firms, competitors).
- Share teasers → sign NDAs → solicit bids.

Goal: Create bidding competition.

3/ Prep for Due Diligence

Checklist:

- Financial audits ✅
- Customer churn analysis 📉
- Tech stack documentation 💻
- Employee retention plans 👥

V. Post-Exit Transition

1/ The Golden Handcuffs

Fix: Tie 20-30% of payout to post-close milestones (e.g., 2-year earnout).

2/ Protect Your Legacy

Fix: Negotiate advisory roles, brand usage terms, and non-disparagement clauses.

𝗖𝗿𝗶𝘁𝗶𝗰𝗮𝗹 𝗘𝘅𝗶𝘁 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗟𝗲𝘃𝗲𝗿𝘀

Factor: Recurring Revenue
Impact on Valuation: 5-8X revenue (vs. 1-3X for project work)

Factor: Gross Margins
Impact on Valuation: <50% = 🚩; >70% = ✅

Factor: Customer Concentration
Impact on Valuation: >30% from one client = 20-40% discount

Factor: Management Depth
Impact on Valuation: No second-in-command? 30% valuation hit

Red Flags That Scare Buyers

❌ Inconsistent financial records
❌ Founder = "Key Person" risk
❌ Pending lawsuits/IP disputes
❌ Declining YoY revenue

Your business is your biggest asset

Build it to sell from day one

Even if you never plan to

♻️ Repost if this changes how you think about building businesses

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