SeaRidge recommends beginning material exit-preparation work roughly 24 to 36 months before a target sale when time allows. That planning window is guidance, not a guarantee of price or closing. It gives owners time to improve financial clarity, management depth, customer diversity, and process documentation before buyer diligence.
When to Start Planning Your Exit
The single most common strategic mistake in a business exit is waiting too long to start planning. Owners who begin the exit preparation process 24 to 36 months before they want to close have time to demonstrate a trend of performance rather than a snapshot. They can clean up financial presentation, reduce owner dependence, address concentration risks, and build the documentation buyers need to feel confident in the transition.
Owners who begin planning 90 days before going to market inherit whatever condition the business is in and compete for buyer attention with the businesses that have spent years preparing. The difference shows in multiples, deal structure, and the probability of a clean close.
Three questions to evaluate readiness
- Is the business performing well and trending in the right direction — not just flat or recovering?
- Can the business function without the owner’s daily involvement for an extended period?
- Does the owner have a clear personal picture of what a successful exit looks like — what structure, what timing, what post-close role?
These questions are worth answering honestly before engaging the market. Owners who are not sure about any of them are not yet ready to go to market — they are ready to begin preparation.
What Buyers Actually Pay For: Adjusted EBITDA
Many lower middle market offers are informed by adjusted EBITDA, but buyers may also use revenue, cash flow, assets, comparable transactions, discounted cash flow, or strategic value. Adjusted EBITDA is not operating cash flow, and its transaction-specific definition must be documented.
How adjusted EBITDA is calculated
Start with net income. Add back interest, taxes, depreciation, and amortization. Then add back owner-specific and non-recurring expenses that would not exist under new ownership:
- Owner compensation above the market rate for a replacement manager
- Personal vehicles, travel, and club memberships run through the business
- One-time legal or consulting fees that will not repeat
- Family member compensation above market rate for services rendered
- Non-recurring facility expenses
The result is adjusted EBITDA — the number a buyer multiplies by the applicable valuation multiple to arrive at enterprise value.
Each dollar of defensible, documented adjusted EBITDA is multiplied at that multiple. At a 5x multiple, $100,000 in proven add-backs adds $500,000 to enterprise value. The multiplier effect is why financial preparation is not optional — it is one of the highest-return activities a seller can do before going to market. Every add-back must be documented and defensible. Undocumented or aggressive add-backs do not survive Quality of Earnings diligence and can create doubt about the entire financial presentation.
If you want to understand what your adjusted EBITDA is and what it implies for value: Get a Free Valuation.
Building a Transferable Business
Buyers pay premium multiples for businesses they are confident will perform after the transition. That confidence depends on whether the business can operate without the founder — and whether there is evidence that it has done so.
Management depth
A leadership team with genuine P&L responsibility and decision-making authority that does not depend on the owner to function demonstrates transferability. Titles without authority do not. Building this depth takes time and requires the owner to actively delegate operational control — not just technically assign it.
Documented processes
If the institutional knowledge of how the business runs exists only in the founder’s head, it is a liability at the closing table. Documented standard operating procedures, training materials, and workflow documentation allow a buyer to verify that the business can be learned and operated by a team that did not build it.
Revenue quality and diversification
Contractual, recurring revenue is valued more highly than project-based or transactional revenue. Customer concentration — where a single customer represents a large share of revenue or profit — reduces buyer confidence and may suppress multiples or affect deal structure. Improving diversification over a multi-year period before a sale produces a more defensible earnings presentation than a concentrated revenue base no matter how strong the customer relationship is.
Financial clarity
Organized, consistent financial statements — ideally on an accrual basis with well-documented add-backs — hold up under buyer diligence better than cash-basis or inconsistent books. The goal is not audited financials in every case, but a financial presentation that allows a buyer to follow the money clearly and quickly. Anything that requires extensive explanation creates doubt.
Deal Structure: Understanding What You Actually Receive
The purchase price in a letter of intent is not the same as what you take home. Understanding the components of deal structure — and how they affect your actual net proceeds — is one of the most important things to do before evaluating any offer.
Enterprise value vs. equity value
Enterprise value is the total value placed on the business. Equity value — what you actually receive — is calculated by subtracting outstanding debt, adding excess cash, and adjusting for working capital.
Many private-company letters of intent use a cash-free, debt-free framework with a normalized working-capital target, but definitions and adjustment mechanics vary. Debt payoff, retained cash, debt-like items, transaction expenses, and any working-capital true-up should be read from the actual LOI and purchase agreement rather than assumed.
Understanding your capital structure — how much debt is on the balance sheet, what excess cash exists, and what a fair working capital level looks like — before you evaluate any offer is essential. A higher enterprise value with significant debt can produce the same or lower equity value than a lower enterprise value offer with no debt.
Cash at close
The certain portion of the transaction. What the seller receives at closing, after debt payoff and working capital adjustment. Maximizing cash at close reduces post-close risk.
Seller notes
Financing provided by the seller, repaid by the buyer over a defined period. Bridges financing gaps and signals seller confidence in the business’s continued performance. Carries collection risk — if the business underperforms after close, the seller may not receive full payment.
Earn-outs
Contingent payments tied to post-close performance metrics can bridge valuation gaps. Revenue-based metrics may be easier to observe than EBITDA-based metrics, but neither is inherently seller-favorable. Definitions, accounting policies, buyer control, operating covenants, dispute procedures, and payment security determine the actual risk.
Rollover equity
Retaining a minority ownership stake in the post-close entity. Creates potential future upside if the buyer executes a growth strategy successfully. Is not cash — value depends on future performance, leverage, and whether the buyer creates and realizes value at a subsequent exit. The risk profile of rollover equity should be evaluated honestly, not assumed to be an upside-only structure.
How SeaRidge Approaches the Sale Process
SeaRidge manages the full arc of a confidential sale process on behalf of the seller — from valuation and financial preparation through buyer outreach, negotiation, diligence coordination, and closing support.
Our role is to protect confidentiality, access the right buyer pool, create competitive tension that improves pricing and deal structure, and keep the process moving so the owner can focus on running the business.
SeaRidge is commission-based and success-fee oriented. There is no retainer or listing fee to begin a qualified owner conversation.
If you are beginning to think about a transition: Get a Free Valuation to understand where your business stands. Learn more about the process at Sell Your Business or M&A Advisory.
Frequently Asked Questions
What is strategic exit planning and when should I start?
Strategic exit planning prepares a business financially, operationally, and structurally for a possible sale. SeaRidge commonly recommends a 24-to-36-month preparation window when substantial improvements are needed. The appropriate period depends on the company and owner; it does not guarantee a particular valuation or closing outcome.
What EBITDA multiple should I expect for my business?
Multiples vary significantly by industry, earnings scale, revenue quality, management depth, and buyer demand. Businesses with stronger earnings, lower owner dependence, diversified customers, and contractual recurring revenue tend to command stronger multiples than those with weaker profiles in any of those areas. A valuation conversation will give you a more specific picture of where your business is likely to fall given its specific characteristics.
What is the difference between enterprise value and equity value?
Enterprise value is the total economic value placed on your business operations. Equity value — what you actually receive — is enterprise value minus outstanding debt, plus excess cash, adjusted for working capital. A letter of intent states enterprise value. Your net proceeds depend on your capital structure. Knowing both numbers before you evaluate any offer is essential.
How long does a business sale typically take?
A well-prepared sale process typically takes several months from engagement through closing. Add 24 to 36 months of pre-sale preparation for financial cleanup, management development, and value optimization. The total timeline from decision to close for an owner starting from scratch is often two to four years if the preparation is done properly.