What makes a business exit-ready?

Three things: clean, auditable financials for at least 3 years; documented operations that don’t depend on the founder; and revenue that is recurring, diversified, and contractually transferable. Businesses that score well on all three command premium multiples. Businesses with gaps in any of these areas see their valuation discounted heavily, regardless of top-line revenue.

What multiple should a small business expect in an acquisition?

Service businesses typically trade at 2–6x EBITDA depending on growth rate, client concentration, recurring revenue percentage, and key-person dependency. A founder-dependent service business with project revenue and no documented processes is at the low end. A business with recurring revenue, documented systems, and a capable management team commands the high end. The gap between 2x and 6x on a $500K EBITDA business is $2M in deal value.

Should founders normalize owner’s compensation when preparing for a sale?

Yes, always. Buyers recast financials using market-rate compensation for the owner’s role before calculating EBITDA. If you’ve been paying yourself above or below market, the adjusted EBITDA will look different from your reported number. Do this calculation yourself so you know what a buyer will see — and more importantly, so you’re running the business against the real profitability number, not a distorted one.

Exit Readiness Checklist for Founders | Peter Palarchio

The best time to prepare for an exit is when you have no intention of selling. When you’re not under pressure, you make better decisions, negotiate from a position of strength, and can walk away from bad deals. Exit readiness isn’t about planning to sell — it’s about running a business that would be worth buying. The two are more aligned than most founders realize.

The Financials

Three years of clean P&Ls with an accountant’s signature. Revenue broken down by client, service line, and recurring vs. project. Gross margin clearly separated from net margin. Owner’s compensation normalized to market rate — this is the single most common mistake I see in small business financials and it distorts EBITDA significantly. Any buyer or serious investor will recast your financials. Do it yourself first so you know what the number actually is.

The Operations

Every core process documented and executable without you. Client relationships that aren’t personal to you — meaning a buyer could retain them after transition. Contracts that are assignable. No single clients representing more than 20% of revenue. A management layer that could run the business for 90 days without your involvement. Buyers pay a multiple on earnings. They discount that multiple heavily for key-person risk, client concentration, and undocumented processes.

The Intangibles

Proprietary systems, frameworks, or methodologies that aren’t just best practices — they’re yours. A brand with genuine market presence and searchable authority. Recurring revenue with high retention. A talent base that wants to stay post-acquisition. These are the things that move a deal from a 3x multiple to a 6x multiple. I keep a rolling score on all of them and treat the gaps as the highest-priority items on my operating agenda.

The Exit Readiness Checklist I Wish I’d Had Earlier

The Financials

The Operations

The Intangibles

Frequently Asked Questions