Exit readiness
Exit readiness is the state in which a company can go through a sale process without delay and without price discounts. It requires audit-ready numbers with documented adjustments, complete documentation, a prepared data room and the removal of dependencies that deter a buyer.
Why exit readiness starts early
A sale process takes six to twelve months from preparation to closing. The numbers examined in it, however, cover the three years before. Anyone who starts only when the process starts can no longer change that history – only explain it. The sensible starting point for sale preparation is therefore roughly twelve to eighteen months before the planned process.
The four dimensions
Quality of numbers. Monthly closings on fixed dates, consistent accruals, reconciled balances, a continuous history over at least three years. Changes in chart of accounts, systems or accounting practice must be reconcilable, otherwise they create exactly the breaks on which a due diligence gets stuck.
Documented adjustments. Adjusted earnings are the basis of the valuation. Every adjustment – one-off costs, shareholder remuneration above market level, discontinued activities, transaction costs – must be individually verifiable. Adjustments without evidence are struck out, and every struck-out item costs purchase price directly.
Documentation and data room. Contracts complete and signed, shareholder resolutions filed, ownership documented, employment contracts and key customer contracts to hand. The most common reason for delays in due diligence is not bad numbers but missing documents.
Dependencies. Customer concentration, reliance on individual people, unsettled succession in key roles, expiring contracts without renewal. Each of these either reduces the price or increases the share that is tied to later conditions.
The factbook
On the sell side the numbers are usually prepared in a factbook or a vendor due diligence, often together with an audit firm. The benefit is twofold: the process gets faster because many questions are pre-empted – and the company's own weak points are discovered before the buyer finds them. A point you name yourself is a fact; the same point found by the other side is a negotiating lever.
The practical test
A simple test of how far preparation has come: how long does it take to produce complete, reconciled monthly reporting for the last three years, broken down by product, customer and region? If the answer is days, the basis is there. If it is weeks, sale preparation has not yet begun.