Why the Best Exits Start 18 Months Before You Think They Do
Most founders think about selling their business as an event. An opportunity arises, negotiations occur, and a transaction closes. The reality is more complex. The outcomes achieved in the final negotiation are largely determined by work done months or years earlier. Founders who understand this prepare accordingly; those who do not leave significant value on the table.
The best exits are not won through clever negotiation tactics in the final weeks. They are won through systematic preparation that positions the business for competitive processes, clean due diligence, and favourable working capital outcomes. This preparation takes time, typically 12 to 24 months, and cannot be compressed without compromising results.
Understanding what to focus on during this preparation window helps founders transform exit readiness from an abstract concept into a concrete action plan that creates measurable value.
The 18-Month Thesis
Why 18 months? The timeline reflects how long it takes to materially improve the factors that buyers evaluate and pay for.
Financial metrics require history to be credible. A single quarter of improved performance could be an anomaly. Twelve to eighteen months of consistent results demonstrates sustainable improvement. Buyers evaluate trends, and creating a favourable trend takes time.
Operational improvements require implementation and evidence. Installing new systems, building management depth, or reducing customer concentration are not overnight achievements. They require planning, execution, and then sufficient time to demonstrate that the changes are working.
Working capital patterns are measured over extended periods. The target established in purchase agreements reflects normalised working capital, typically calculated as an average over multiple periods. Improving working capital requires changes that compound over time, not last-minute adjustments that buyers will see through.
Process preparation takes several months. Developing marketing materials, organising data rooms, engaging advisors, and preparing for buyer interactions requires time even after the business itself is ready. Rushing this work produces inferior materials and worse outcomes.
The 18-month window allows founders to identify areas needing improvement, implement changes, demonstrate results, and then engage the market from a position of strength. Shorter timelines force compromises that reduce the value ultimately achieved.
What Buyers Find in Due Diligence
Due diligence is where preparation either pays dividends or reveals its absence. Understanding what buyers look for helps founders prioritise preparation efforts.
BCG research on deal timelines found that approximately 40 per cent of transactions took longer to close than the timeline estimated in the deal announcement. Among delayed deals, nearly two-thirds required an additional three months or more beyond the original timeline. For transactions over $2 billion, the average time from signing to closing reached 191 days.
These delays frequently result from diligence issues that prepared sellers would have addressed in advance. Incomplete records require reconstruction. Unclear financial presentations require explanation and re-work. Operational inconsistencies require investigation and resolution. Each issue extends the timeline and creates opportunities for price adjustments.
Working capital is the area most likely to surprise unprepared sellers. SRS Acquiom analysis shows that working capital purchase price adjustments are now virtually ubiquitous, present on more than 90 per cent of private target M&A deals. The average adjustment owed to buyers is roughly 0.9 per cent of transaction value.
In a $50 million transaction, that 0.9 per cent average represents $450,000 flowing from seller to buyer at closing. Sellers who understand working capital patterns, have established appropriate targets, and can defend their calculations protect this value. Those who do not lose it to buyers who understand the mechanics better.
Prepared sellers move through diligence faster with fewer surprises. This speed has value beyond closing earlier; it maintains negotiating momentum and reduces opportunities for buyers to extract concessions based on extended processes.
The Financial House
Getting the financial house in order forms the foundation of exit preparation.
Clean books with consistent accounting treatment over multiple periods build buyer confidence. Changes in accounting methodology, unexplained adjustments, or inconsistent categorisation all create questions that extend diligence and raise concerns. Financial statements should tell a clear story that buyers can verify without extensive investigation.
Audited or reviewed financials signal operational maturity. While not required for all transactions, having professional review of financial statements reduces buyer concerns about accuracy and accelerates the diligence process. The cost of audit is modest relative to the value it creates in buyer confidence.
EBITDA normalisation should be prepared before engaging the market. Identifying owner-specific expenses, one-time costs, and accounting choices that obscure true earnings power takes time. Developing defensible add-backs with supporting documentation requires careful analysis. Buyers will scrutinise normalisation adjustments; being prepared for that scrutiny matters.
Revenue recognition clarity is particularly important for software businesses. Understanding how revenue is recognised, whether recognition is consistent with accounting standards, and how buyers might interpret revenue quality all affect valuation discussions. Ambiguity in revenue recognition creates risk discounts that prepared sellers avoid.
Tax positioning affects both transaction structure and proceeds. Understanding the tax implications of different deal structures helps sellers evaluate offers on an after-tax basis. Addressing historical tax issues before going to market prevents surprises that could derail transactions.
The Operational House
Buyers acquire businesses, not just financial statements. Operational readiness matters as much as financial preparation.
Management depth demonstrates that the business can succeed without the founder. A strong second-layer management team, documented processes, and clear delegation of responsibilities all signal that the business is not dependent on a single person. Buyers pay premiums for businesses that can continue performing under new ownership.
Documented processes and systems reduce integration risk. When operations exist primarily in the founder's head, buyers see risk. When processes are documented, systems are implemented, and operations are replicable, buyers see a business that can be integrated or operated independently.
Technology infrastructure should be current and maintainable. Technical debt, outdated systems, and undocumented code all create post-closing costs that buyers factor into their offers. Addressing these issues during the preparation window improves both valuation and deal certainty.
Contract positions should be reviewed and strengthened. Customer contracts with unfavourable terms, supplier agreements that cannot be assigned, or employment arrangements with hidden liabilities all create diligence issues. Cleaning up contract positions before going to market prevents problems during the process.
Legal and compliance matters should be addressed proactively. Unresolved litigation, regulatory concerns, or intellectual property questions all create diligence friction. Resolving these issues during preparation removes obstacles to closing.
The Metrics That Matter
Certain metrics receive disproportionate attention from buyers. Optimising these metrics during the preparation window directly affects valuation.
Net revenue retention demonstrates customer value. Businesses with NRR above 110 per cent show that customers expand their usage over time, reducing dependence on new customer acquisition and providing confidence in future revenue streams. Improving retention requires operational changes that take time to implement and demonstrate.
Customer concentration creates risk that buyers discount. A business where a small number of customers represent most of revenue faces material risk if any of those relationships deteriorate. Diversifying the customer base requires acquiring new customers and growing smaller accounts, both of which take time.
Working capital patterns are measured over extended periods. The normalised working capital target in purchase agreements typically reflects an average over 12 to 24 months. Improving working capital efficiency today affects the calculation when you go to market 12 to 18 months from now. Starting earlier compounds the benefit.
Growth trajectory matters more than point-in-time results. Buyers evaluate trends: is growth accelerating, steady, or decelerating? Creating a favourable trend requires sustained performance over multiple quarters. A few months of improvement is not enough; consistent results over an extended period carry credibility.
The same SRS Acquiom research shows that earnouts pay approximately 21 cents per dollar across all deals. This statistic underscores the importance of demonstrating value through current performance rather than promising future results. Metrics that are strong today command cash consideration; metrics that promise future improvement are discounted heavily.
Creating the Competitive Process Premium
All of this preparation serves a strategic purpose: enabling the competitive process that drives superior outcomes.
Research from Focus Bankers demonstrates that a competitive sales process can result in 50 to 100 per cent increases in offers compared to proprietary sales. This premium represents the single largest source of value creation available to founders contemplating an exit.
But competitive processes require preparation to execute effectively. Advisors need marketing materials that position the business compellingly. Multiple buyers must be engaged simultaneously, requiring bandwidth that prepared sellers have available. Due diligence must proceed smoothly to maintain competitive pressure; unprepared sellers lose momentum when diligence bogs down.
The 50 to 100 per cent premium is not automatic. It requires a business that multiple buyers want to acquire, presented through materials that highlight value, supported by data that withstands scrutiny, and managed through a process that maintains competitive tension. Each of these elements requires preparation that cannot be compressed into the final weeks before going to market.
Founders who invest 18 months in systematic preparation position themselves to capture this premium. Those who respond opportunistically to inbound interest, without having done the preparation work, typically achieve outcomes at the lower end of what their businesses could command.
The best exits do not happen by accident. They result from deliberate preparation that begins long before the first buyer conversation. The 18-month window is not arbitrary; it reflects the time required to do this work properly. Founders who understand this and act accordingly achieve outcomes that reward their preparation.
If you are 12 to 24 months from a potential exit and want to understand what preparation would look like for your specific situation, we would welcome a confidential conversation about how to use the time wisely.