Business exit strategy: 9 steps to sell your business smoothly

Published Friday 3 October 2025

Table of contents

• What is a business exit strategy?
• Types of business exit strategies
• How to sell a business
• Planning your exit timeline
• Handle your exit strategy with Xero
• FAQs on business exit strategies

Key takeaways

• Start planning your exit strategy 3-5 years before you intend to sell, as proper preparation can increase your business value by 20-40% and requires systematic improvements across finances, operations, and documentation.

• Identify your target buyer early (family, employees, or external parties) because this determines your entire preparation strategy, from pricing and payment terms to the level of documentation and transition support required.

• Make your business operationally independent by training key employees, documenting all processes, delegating decision-making authority, and reducing customer dependence on your personal involvement.

• Maintain clean, professional financial records for at least two years before selling, as poor bookkeeping can reduce your sale price by 10-20% or prevent a sale altogether.

What is a business exit strategy?

A business exit strategy is a plan for transferring ownership and wrapping up your involvement in your company. It ensures you maximise your sale price whilst preparing the business to thrive under new ownership.

Why you need an exit strategy:

• Maximise financial return: Proper planning can significantly increase your sale price
• Ensure business continuity: The company continues operating smoothly after you leave
• Reduce dependency: Makes your business less reliant on your personal involvement
• Create options: Gives you multiple pathways for leaving when the time is right

This process is also called succession planning, and while the article suggests it typically takes 2 – 5 years, some research indicates the process could start as many as 15 years before the owner plans to step down.

Types of business exit strategies

Choosing how you'll exit is just as important as deciding when. Each path has different benefits and requires a unique approach. Understanding your options early on helps you prepare the business for the right kind of buyer.

Merger or acquisition (M&A)

This involves selling your business to another company, often a larger competitor. It can lead to a significant payout but may also mean your brand gets absorbed.

Management buyout (MBO)

You sell the business to your existing management team. This can be a great way to ensure your company's legacy continues with people who already understand it.

Family succession

You pass the business on to a child or other relative. This keeps the business in the family but requires careful planning to ensure fairness and a smooth transition.

Sell on the open market

Sell to an unrelated third party. This can maximise your sale price but often requires you to make the business as attractive and self-sufficient as possible.

Liquidate

Close the business and sell off its assets. This is often the simplest route but may not provide the best financial return, and depending on the method, you may have to pay Income Tax on distributions over £25,000.

How to sell a business

Preparing your business for exit requires systematic planning across multiple areas. These 9 steps guide you through the essential preparations that business brokers and advisors recommend to maximise your sale price and ensure a smooth transition.

The process typically takes 2 – 5 years and covers:

• Identify your target buyer and align your strategy
• Prepare your finances and optimise your records
• Make your business operationally independent from your personal involvement
• Value your business and look for ways to enhance its value
• Prepare your marketing for the sale process

1. Pick a target buyer

Your target buyer determines your preparation strategy and affects everything from pricing to payment terms.

Family buyers:

• Transparency is crucial: Ensure fair valuations to avoid family conflicts
• Documentation matters: Clear agreements prevent future disputes
• Consider tax implications: Family transfers often have different tax treatments

Employee buyers:

• Expect instalment payments: They'll likely pay a deposit then use business income
• Plan transition support: You may need to stay involved during the handover
• Structure earn-outs carefully: Tie remaining payments to business performance

External buyers:

• Prepare comprehensive records: They need complete financial and operational data
• Professional presentation: Clean books and documented processes are essential
• Competitive process: Multiple interested parties can drive up your sale price

2. Decide how fast you'll want out

Your exit timeline depends on your buyer type and business model. Consider how quickly you want to leave and whether you're comfortable with ongoing involvement.

Gradual exit (2 – 5 years):

• Best for: Family or employee sales, client-dependent businesses
• Payment structure: Deposit plus instalments from business income
• Your role: Ongoing consultation and transition support
• Benefits: Higher total sale price, reduced business disruption

Clean break (6 – 18 months):

• Best for: External buyers with full financing
• Payment structure: Lump sum at completion
• Your role: Limited post-sale involvement
• Benefits: Immediate exit, no ongoing business risk

3. Get your accounting sorted

Clean financial records are essential for any business sale. Buyers need at least two years of accurate, professional bookkeeping to assess your company's true value.

Essential financial preparations:

• Fix bookkeeping issues: Ensure all transactions are properly recorded and categorised
• Improve profitability early: Changes need 12–24 months to show as sustainable trends
• Organise supporting documents: Keep receipts, contracts, and bank statements easily accessible
• Professional presentation: Consider having an accountant review your records

Why this matters: Poor financial records can reduce your sale price by 10 – 20% or even prevent a sale altogether.

Use our balance sheet template to help get things in order.

4. Make yourself redundant

Making yourself redundant is crucial for a successful business sale. Buyers want a company that operates independently of the current owner.

Steps to reduce your involvement:

• Train key employees: Give them the skills and authority to make decisions
• Document your processes: Create systems that do not rely on your knowledge
• Delegate tasks gradually: Start with smaller decisions and work up to major ones
• Reduce customer dependence: Introduce clients to other team members
• Test your absence: Take longer holidays to see how the business copes

Timeline: Start this process 2 – 3 years before your planned exit date.

5. Ensure your business is a well-oiled machine

Ensure you have formal (and efficient) processes for getting work done. Who does what, when, and how? Make sure there are protocols to guide all this. Potential buyers will be impressed if some things in your business happen automatically.

6. Write down how everything happens in your business

Write a how-to manual for your business, so that a stranger could pick up the reins and run everything tomorrow. Record every process, including admin.

Make a note of the steps you follow for each of these tasks. While you're at it, write formal job descriptions for employees. And create templates for tasks that are repeated in your business.

7. Figure out how to drive up the valuation of your small business

What are the things that make your business great? Do you have a really outstanding product? Loyal customers? Valuable intellectual property? Find the strengths in your business and grow them, so that they become even more valuable.

Also, identify areas for improvement and address them. You'll need someone from outside the business to provide this assessment. Get your accountant involved. If they do not have the particular skills you need, they may be able to recommend someone who does.

8. Get a guideline business valuation

You won't know what you'll get for your business until the day it's sold, but you can get a rough estimate. Ask for a professional opinion. Your accountant should be able to introduce you to someone, or you could search for a local business broker.

A guideline valuation will help satisfy your curiosity and set realistic expectations, which is crucial as research shows sellers generally overestimate their firm's value, often aiming for a multiple of 6 – 7 times net profit, whereas buyers target 2 – 3 times.

If they predict a lower price than you'd hoped, you might delay your exit, and spend some time building value in the business.

9. Work on a sales pitch

Buyers need to be excited by your business, so come up with an elevator pitch that captures the essentials. Craft a story that explains why you got started, how you've grown, and what you've achieved.

Paint a positive picture of the future, too, but keep it real. Incorporate stats and facts to support what you're saying.

Planning your exit timeline

A good exit doesn't happen overnight. It's a process that takes years of careful preparation. Many owners talk about a ‘five-year plan’, which is a good way to think about it. This is not a strict deadline, but a signal that it is time to start getting serious about the future.

Think of it in two stages. First, spend three to five years getting the business ready by improving profitability, organising your finances, and reducing its reliance on you.

Then, allow at least a year for the sale process itself, which includes finding a buyer, due diligence, and negotiations.

Handle your exit strategy with Xero

Every business owner will eventually exit their company – whether by choice or circumstance. Planning ahead puts you in control of the process and maximises your financial return.

The benefits extend beyond the sale:

• Higher sale price: Proper preparation can increase your business value by 20–40%
• Better business operations: The improvements benefit you while you're still running the company
• More options: Multiple exit strategies give you flexibility when the time comes
• Reduced stress: A planned exit is far less stressful than an emergency sale

Ready to start planning? Speak to your accountant or business adviser about developing your exit strategy. If you do not have professional support, find a qualified adviser who understands business transitions.

For day-to-day financial management that supports your exit planning, try Xero accounting software for free and see how clean, automated bookkeeping makes your business more attractive to buyers.

FAQs on business exit strategies

Here are answers to a few common questions about planning your business exit.

What is the 5 year exit strategy?

The ‘five-year exit strategy’ is a common phrase business owners use. It usually means they know they need to plan their exit but have not worked out the details.

Think of it as a mental starting line for the multi-year process of preparing your business for sale.

What is the simplest exit strategy?

Liquidation is often the simplest and fastest exit strategy. It involves closing the business and selling the assets. However, while it's straightforward, it may not give you the highest financial return compared to selling the business as a going concern.

What are the main types of exit strategies?

The main options include selling to a third party (merger or acquisition), selling to your management team or employees (management buyout or employee stock ownership plan), passing it to family (succession), or closing the business and selling its assets (liquidation). The best choice depends on your personal, financial and business goals.