When should you start planning your business exit?
Exit planning is not an event – it is a multi-year process that should begin three to five years before you intend to sell. Most business owners delay until the last moment, which severely reduces valuation, increases risk, and often triggers regret within a year of the sale. Whether you plan to sell to a competitor, pass the business to your children, execute a management buyout, or list on the stock exchange, the preparation looks remarkably similar: you must build something worth buying.
The Hard Truth About Business Value
A seasoned business advisor I know once worked with a creative firm owner who wanted a quick exit. He had to deliver an uncomfortable message. “You can exit quick, but you’re not going to get what you want for it because there’s nothing here for anyone. You’ve got a list of customers, but what’s somebody buying?”
That owner had to spend several years putting in structure and the right team. Only then did he have a “full package” rather than just a job for himself.
This is the central challenge. Many business owners mistake income for value. They focus on profit. But buyers pay for transferable value. When owners go to sell, they often hear an uncomfortable truth: their business has no value without them running it.
You must demonstrate the business has value beyond its current cash flow. Owners need to “lift the underlying value of the business” so that when they exit, they are financially rewarded for their years of effort. This means shifting focus from day-to-day operations to strategic financial management.
Why 75% of Owners Regret Selling
Here is a statistic that should give you pause. Seventy-five percent of business owners profoundly regret selling their business just one year after the transaction.
The cause? They suffered from a loss of identity. They let their business define who they were.
One advisor shared a story about a client named Patty who almost killed a deal the day before closing. The buyer demanded she transfer her personal mobile phone number to the business because she used it for customers. Patty panicked. Not because of the phone. The request hit her with the realisation that tomorrow the business would be gone, and she had no idea who she was without it.
This is what advisors call the “third leg” problem. Business owners focus on business value and personal wealth. They forget to plan for life after the sale. Mountain climbers understand this instinctively. The goal is not to reach the summit. The goal is to reach the summit and get back down safely. Eighty percent of climbing accidents happen on the descent. Business owners crash after the exit because they did not plan for the descent.
The Mistakes That Destroy Value
The Founder Dependency Trap
Many founders hit a “delegation threshold” around the $500,000 revenue mark. They must decide how to use other people’s time. Failing to cross this threshold creates a bottleneck that kills value.
Many CEOs hit the “glass ceiling” whereby they cannot scale further alone. They have to bring in professional management and advisors to break through and prepare the business for its next phase.
If your business cannot run without you, it is difficult to sell. Period.
The “Ugly Baby” Syndrome
Founders often suffer from the “Ugly Baby Syndrome”. They think their business is beautiful when the market sees it differently. An Advisory Board’s role is to tell them the truth, potentially saving them from years of wasted effort or guiding them to pivot before an exit attempt.
Waiting for the Perfect Time
Half of all exits are involuntary. They happen because of the “5 Ds”: Death, Disability, Divorce, Distress, and Disagreement.
I know of a business owner who had a successful eleven-year run with her company until a health crisis took her out of the game. Later, she faced a business divorce with her partner. Because she had not planned for these contingencies, she missed a more profitable exit window. She noted that while she had a profitable exit later, she was not prepared when the best opportunity came.
The External CEO Failure
New Zealand-based Josh Comrie, who has guided many business transitions, observes a seventy-five percent failure rate when founders step back and immediately hire an external CEO. Why? Because the founder often cannot let go. They shut down the new CEO’s ideas. They fail to set them up for success.
The first hired CEO is often described as a “Kamikaze CEO”. This person almost always fails or leaves quickly. The owner is not truly ready to let go. They are looking for a copy of themselves, which does not exist.
After handing over the reins, founders often stay around and interfere. They become the “Chief Meddling Officer”, undermining the new leadership instead of finding a passion project elsewhere.
The Dangerous Family Business Assumption
Tom Deans offers a controversial but important insight. He argues that gifting a business to children destroys family wealth. The next generation often lacks the skin in the game or passion to run it. He suggests every business should be sold, even if it is to the children, at full market value. This ensures they are committed.
There is a grim proverb here. “The father built the business, the children lost it, and the grandchildren were left with nothing”. Without a governance structure, the business often collapses during generational transition.
Real Stories of What Works
The 97x Growth Exit
Damien Ross founded a business (ITCOM) and grew it ninety-seven times in seven years before eventually exiting. The ride included what he called “rollercoaster rides” and personal difficulties. He admitted that ignorance of the difficulty was the only reason he started.
Ross implemented an Advisory Board early, around year two or three. The Chair provided a “fiscal governance layer” and helped him handle balance sheet challenges caused by extreme growth. The Chair helped him see options he could not see himself. Ross emphasises that having someone along to hold you accountable is critical for anyone with ambition.
The Management Buyout That Doubled Twice
Josh Comrie shares his own exit story. After ten years running a recruitment firm, he became bored and tried to force the business in a direction the market did not want. Recognising he was the bottleneck, he sold the business to his management team.
Because he stepped out completely, the new team, who were hungry and ambitious, doubled the business in three years. Then doubled it again in the next three. Had he stayed, the business would likely have stagnated.
The $80 Million Lesson
New York-based Louis Gagnon built a tech company, raised capital, and six months later had a term sheet to be bought for eighty million dollars. He put all his eggs in that basket. Then the dot-com crash happened. The term sheet was cancelled a week later. His lesson? “Watch out for the environment, man”.
The Negotiation That Nearly Failed
Sir Nigel Rudd described selling Invensys’ rail business to Siemens. He agreed on a price fifty percent higher than the initial valuation. A week before closing, Siemens called to say due diligence required a twenty-five percent price cut. Rudd’s response was immediate. “No deal”. He withdrew the lawyers. Four days later, Siemens came back and did the deal at the original price.
The lesson? You must be prepared to walk away. If you cannot say no, you have no leverage.
How Advisory Boards Make the Difference
Advisory Boards act as accountability partners and strategic guides during the exit process. They serve several critical functions.
First, they provide objectivity. Owners often have deep emotional attachments. They make decisions based on what they want to be true rather than market reality. Advisors provide a “contest of ideas” and a safe space to challenge thinking.
Second, they add credibility. A formal advisory structure signals to buyers that the company is governed professionally. When acquirers look at a business, they examine the minutes and the constitution. Proper governance proves the business has an “operating system” and is not just reliant on the owner’s intuition.
Third, they bridge skill gaps. If your company wants to be acquired by a US firm but has no US footprint, you can appoint an advisor with US market experience. This signals readiness and bridges that gap without hiring a full-time executive.
Fourth, they play “bad cop” in negotiations. Advisors can handle aggressive negotiation on price. This allows the management team to maintain good relationships with the buyer, who will likely be their future boss.
The analogy of building a house is appropriate in this context. You must get the concrete and foundations right, the governance and financial structure, and put up the walls before you worry about products. An Advisory Board helps ensure the foundation is solid so the asset has real value when it comes time to sell.
The Timeline You Need
The recommendation is to think in terms of decades. You must determine what you are trying to build and give back, taking a long-term view rather than looking for a quick exit in three months.
If you are thinking about exiting earlier, you ideally need five years. Minimum, two to three years. This allows time to find the right successor, develop them, and ensure the business is not dependent on you.
The average exit price globally sits at roughly 3.45 times EBIT. But exits forced by death, divorce, or debt sit at the bottom twenty percent of value. A planned exit yields a much higher return than a forced one.
Director’s FAQ
When should you start exit planning?
Exit planning should begin three to five years before you intend to sell. Most business owners delay until the last moment, which significantly reduces valuation. The minimum timeline is two to three years, which allows time to build management depth and reduce founder dependency.
What makes a business valuable to a buyer?
Buyers pay for transferable value – not just current cash flow. Your business must be able to operate and generate profit without you running it day-to-day. This means documented systems, professional management, diversified customer base, and clear governance structures that prove the company has an “operating system”.
Why do so many business owners regret selling?
Seventy-five percent of owners regret selling within one year because they experience a loss of identity. They allowed the business to define who they were and did not plan for life after the sale. This is the “third leg” problem – owners focus on business value and personal wealth but ignore the psychological and lifestyle transition of exiting.
What are the biggest mistakes that destroy value during exit planning?
The most damaging mistakes include: founder dependency (business cannot run without you), the “Ugly Baby Syndrome” (misreading market reality), involuntary exits forced by death or distress, failing to let go when hiring an external CEO, and assuming family business succession will work without structure. Half of all exits are involuntary and receive significantly lower valuations.
How does an Advisory Board help with business exit planning?
Advisory Boards provide objectivity (safe space to challenge thinking), credibility (signals professional governance to buyers), bridge skill gaps (bring in expertise you lack), and play “bad cop” in negotiations. They act as accountability partners and help owners see options they cannot see themselves, ultimately de-risking the transition and maximizing exit value.
Your Next Step
Exit planning is a team sport. No single person can handle the complex tax, legal, financial, and emotional aspects alone. You need a central coordinator, like a general contractor building a house. They do not pour the cement or wire the electricity. But they know who does. They manage the blueprint.
If you are a business owner thinking about your exit in the next two to five years, now is the time to establish an Advisory Board. Not after you have signed a letter of intent. Not when a buyer comes knocking. Now.
I help B2B business owners establish Advisory Boards that prepare companies for successful exits. Whether you plan to sell, transition to family, or execute a management buyout, structured governance makes the difference between leaving money on the table and maximising your life’s work.
Ready to build a business worth buying? Contact me at [email protected] to discuss how an Advisory Board can prepare you for exit.
About the author: Andrew Seerden is a commercial strategist and trusted governance advisor with 30+ years leading strategy and sales at IBM, Compaq, and Hewlett-Packard. He works with B2B business owners and boards to strengthen governance, improve board effectiveness, and prepare for successful exits. Learn more at seerdenboardpartners.com.
This article was originally published on LinkedIn.
View the original discussion here.