Day One Exit Planning

Most founders think about selling their business the way most people think about retirement: someday, eventually, when the time is right. This is a catastrophic mistake.

The decisions you make today determine whether you'll have options tomorrow. Exit planning isn't about wanting to sell. It's about having the choice to sell, on your terms, when you're ready.

"Exit" doesn't necessarily mean selling to a private equity firm or taking a company public. You might hand it down to your children. You might sell it to a key employee. You might merge it with a competitor. But one way or another, you will leave this business because you're not going to work forever. If you don't have a plan for that departure, what you've built isn't really a business. It's a job. And jobs don't create generational wealth.

The Sobering Statistics

Here's a truth most entrepreneurs don't want to hear: the vast majority of small businesses never successfully sell. According to BizBuySell market data, only 20 to 30 percent of businesses that go to market actually close a transaction. The median close rate for businesses listed between 2018 and 2022 was just 6.46 percent. That means for every hundred businesses listed for sale, fewer than seven found buyers.

But here's what's interesting: the Exit Planning Institute found that planned exits yield dramatically better outcomes. Sellers who planned their exits earned a median profit of $100,000, compared to just $6,000 for those who sold reactively or under duress. That's not a typo. Planned exits generate roughly seventeen times more profit than unplanned ones.

This guide is about joining that small minority of business owners who plan from day one, execute with discipline, and walk away wealthy.

Why You Need to Plan From Day One

When we were ready to sell MenoLabs, the buyer's investment bankers sent us an Excel spreadsheet for our due diligence file. It contained nearly a thousand line items.

"Certificates of insurance since inception." "Quarterly balance sheets since inception." "Every contract with every vendor since inception." "Employment agreements for all current and former employees." "Trademark registration documentation." "Regulatory correspondence." The list went on and on.

Now, imagine you've been running your business for seven years without planning for this moment. You've been keeping books, more or less, but your QuickBooks file is a mess. Your contracts are scattered across email threads and file folders. You're not even sure you have copies of some early vendor agreements. Your insurance records are incomplete. Your employee files are in various states of organization.

This is the moment when deals die. Not because the business isn't valuable, but because the seller can't prove it. Due diligence is where buyers find reasons to reduce their offer or walk away entirely.

Document everything. Build your due diligence file as you go. When it's time to sell, you'll thank yourself.

The Day One Exit Master Checklist

Before we dive into strategy, let's establish the foundation. This checklist covers everything that should be in place, or planned, from the moment you decide to build a business.

Corporate Foundation

• Legal entity formed (LLC, S-Corp, or C-Corp based on your situation)
• Operating agreement or shareholder agreement in place, including buyout provisions, voting rights, and death/disability clauses
• EIN obtained from IRS
• Business bank account opened and funded
• Registered agent designated and compliant
• Required state and local business licenses obtained

Financial Infrastructure

• Professional accounting system set up (QuickBooks, Xero, or similar)
• Separate business and personal finances completely
• Monthly financial statement process established
• Relationship with CPA or accounting firm
• Payroll system if applicable, with proper tax withholding

Legal Protection

• Appropriate business insurance (general liability, professional liability, product liability as applicable)
• Relationship with business attorney
• Contract templates for customers, vendors, and employees
• Intellectual property protection strategy (trademarks, patents, trade secrets)

Documentation Practices

• Due diligence file established with organized folders for all categories
• All contracts filed immediately upon execution
• Employee files maintained with required documentation
• Customer interview notes and market research archived
• Standard operating procedures documented as they're developed

Exit Awareness

• Exit thesis defined (who might buy this, at what multiple, on what timeline)
• Comparable exits researched in your industry
• Potential strategic buyers identified
• Understanding of typical industry valuation multiples

Review this list quarterly. Every item you can check off makes your eventual exit smoother and more valuable. Every gap is a problem you'll have to solve later, probably under time pressure, probably at a cost.

How Every Decision Affects Your Exit

Every choice you make in your business either increases or decreases its eventual sale value. Once you internalize this, your decision-making changes fundamentally.

Consider a simple example: you need to choose between two vendors for a critical supply. Vendor A is 15% cheaper but requires verbal agreements and provides no documentation. Vendor B costs more but provides formal contracts, certificates of insurance, and detailed invoicing.

In the short term, Vendor A seems like the smart choice. You save money, and everything works fine.

Fast forward to your exit. A buyer's due diligence team asks for all vendor contracts. For Vendor A, you have nothing, just emails and handshakes. They flag this as a risk. The lack of documentation becomes a negotiating point, or worse, a reason for the buyer to question your operational sophistication.

That 15% savings just cost you many multiples of its value.

Building Your Due Diligence File

The due diligence file is the single most important exit preparation tool. It's simply an organized collection of every document a buyer might request:

Corporate: Articles of incorporation or organization. Operating agreements. Board minutes if applicable. Stock ledger or membership interest records. Any amendments to founding documents.

Financial: Tax returns since inception. Monthly and annual financial statements. Accounts receivable and payable aging reports. Bank statements. Debt agreements.

Contracts: Customer agreements. Vendor contracts. Lease agreements. Licensing agreements. Partnership arrangements.

Insurance: All policies. Claims history. Certificates of insurance from vendors and subcontractors.

Human resources: Employee roster with compensation details. Offer letters. Employment agreements. Benefits documentation. Termination records with supporting documentation.

Regulatory: Licenses and permits. Compliance certifications. Correspondence with regulatory agencies. Inspection reports.

Operations: Standard operating procedures. Process documentation. Technology systems inventory. Vendor and supplier information.

If you start building this file from day one, it's just part of how you run the business. Every contract gets filed. Every financial statement gets archived. It takes minutes per week to maintain.

If you wait until you're ready to sell, you're looking at weeks or months of archaeology, digging through old files, reconstructing records, hunting down documents you're not even sure exist.

How Missing Documentation Costs You Money

Let's say a buyer finds that you didn't carry adequate product liability insurance during your first year of operation. That gap represents risk: potential claims that could emerge after the acquisition. Even if nothing ever happens, the buyer's lawyers will flag it.

The result? "We were prepared to offer $10 million. Given this insurance gap, we're reducing that to $9.5 million to account for the additional risk we're assuming."

Half a million dollars gone because of a shortcut you took years ago.

Missing employee documentation can trigger the same concerns. Regulatory gaps are even worse. If you've been operating without required permits or cutting corners on compliance, a buyer might walk away entirely. Nobody wants to acquire a lawsuit.

And never cut corners on payroll taxes. The IRS imposes a 100% personal liability penalty, called the Trust Fund Recovery Penalty, for unpaid payroll taxes. This liability can follow you personally, even after you sell the business.

The Bottom Line

Building and selling a business is the fastest path to creating generational wealth for your family. It's also risky, difficult, and demanding. Most people can't muster the discipline and persistence to see it through.

But you're not most people. If you've read this far, you're serious about building something valuable. You're willing to learn from others' mistakes instead of paying for your own.

Start your due diligence file today. Document everything from here forward. Make every decision as if a buyer is watching. Because someday, one will be.

And when that day comes, you'll be ready.