Exit Readiness: A CFO’s Perspective on Preparation

CFOs need to prepare in advance to ensure a successful exit. Tom Pierce, Managing Director of CFO Advisory Services, shares how to begin.
Updated: January 7, 2025

The Federal Reserve’s decision to cut the main interest rate by a half percentage point signals the beginning of the end of the most restrictive IPO and M&A environment in recent memory. 

With borrowing costs declining from their two-decade highs, we don’t know exactly when exit activity will accelerate, but we see the window is opening. The key question CFOs in the middle market should be asking now is: “Are we ready for an inbound offer?”

Tom Pierce, a serial CFO who’s overseen over 130 completed transactions and is Managing Director of CFO Advisory Services at Consero Global, recently sat down with the Association for Corporate Growth (ACG) Middle Market Growth Conversations podcast to offer a CFO’s perspective on what to consider ahead of a sale and how to kick off the exit preparation process.

The CFO’s role in exit preparation

CFOs have myriad responsibilities to balance, but in Pierce’s view, their primary role is the steward of shareholder value. Focusing on exit due diligence should be a priority from day one.

The CFO will be responsible for leading and driving value in the sales process. To prepare, Pierce recommends setting a date-specific endpoint toward which you will lead the business. It “could be three months or three years in the future…(But) if you are the CFO of a PE-owned business…(an exit) is going to happen. That’s why they invested. So be ready.”

As a veteran CFO, Pierce shares the framework he followed to complete over $4.3 billion in transactions.

The core pillars of exit readiness

With an end date in mind, CFOs should start developing five core pillars of an exit readiness strategy before receiving an inbound offer, including:

  • Enterprise valuation
  • Financials and KPIs
  • Customers and sales contracts
  • Legal review
  • Advisory team

Successful exits hinge on anticipating and addressing questions and potential red flags from the buyer’s perspective. Pierce highlights the critical questions CFOs should focus on before receiving an offer.


Five Pillars of Exit Readiness and How To Think Like A Buyer

1. Enterprise valuation
  • Have you identified and cured potential critical risk factors?
  • Have you hired a forensic analyst to diligence your company?
  • Does your business have any unpaid tax liabilities?
  • Are you overpaying taxes?
2. Financials and KPIs
  • Have you conducted a sell-side quality of earnings report?
  • Do you have a current-year forecast and a three-year outlook?
  • Do you maintain an annual forecast?
3. Customers and key employees
  • What does your sales pipeline look like?
  • Which customers can be great references? 
  • Which customers are detractors and what would they say about the business?
  • Do you have retention agreements with key employees?
4. Legal review
  • Have you analyzed all of your sales contracts?
  • Do any customers require approval to transfer a contract in a sale? 
  • Is there a limitation of liability?
5. Advisory team
  • Who are your internal and external advisors? 
  • Do you have a sell-side legal account? 
  • Do you have an investment banker? 
  • Do you know which intermediaries you would want to hire?

Enterprise valuation risk factors

Areas to address: tax liabilities, regulatory compliance

To understand the drivers and threats to a firm’s enterprise valuation, Pierce recommends adopting the mindset of a buyer.

For example, buyers will want to know about any tax liabilities on potential acquisitions. “If you have unpaid taxes, they’re going to find that out.” Alternatively, if you are overpaying taxes, that will negatively affect your cash flow and valuation.

Hiring a third-party forensic analyst in the diligence process can also help diagnose and cure potential enterprise valuation risks. “They will come in with an unsullied eye to find…and treat these problems before you go to market.”  

Financials and KPIs

Areas to address: quality of earnings, revenue source documentation, annual forecasts

Audited, clean financial reporting are table stakes for successful exits. CFOs earn their paychecks in exits by making sure the numbers communicate the full value of the business to buyers.

Quality of earnings is a common area where value is lost in transactions. Any buyer will find “if you are overstating your earnings, but if you’re understating (them), that’s value leakage.” 

Pierce recommends bringing in an outside advisor to diligence financial statements and analyze the quality of earnings to identify and treat any problems before going to market.

Customers and key employees

Areas to address: customer references and history, key employee retention

Although some consider these the purview of the CRO, Pierce recommends that CFOs review sales contracts, the sales pipeline, and key employees as the main drivers of business value.

For example, if a major customer churns, the CFO should be able to track and audit:

  • When and why they were lost
  • If the loss was unavoidable (such as the customer’s bankruptcy or acquisition) 

Buyers will want to talk to your customers before they complete an acquisition or transaction. CFOs should know which customers will respond most favorably, and alternatively which current or previous customers may be detractors and why.

Pierce also notes that key employees “are the source to keeping customers happy and generating more revenue,” and personnel loss is a critical consideration before an exit. 

Before a CFO can close a transaction, they should ensure that non-compete documentation is in place and critical staff are secure with retention agreements.

Legal review

Areas to address: legal counsel, sales contracts

If you’re a CFO at a company being sold, the business is likely more mature and you have many contracts and legal requirements to review with the aid of legal counsel.

As the stewards of shareholder value, CFOs should review sales contracts for potential detriments to an exit. For example, acquirers will consider the following tangible risks:

  • Customer requirements to approve a transfer of a contract in a sale
  • No limit of liability

Even with a strong customer base, unfavorable sales contracts can be terminal for a sale if unaddressed. Pierce recalls, “A technology business I was associated with…had a tremendous customer base, but some of the older customer agreements or sales contracts provided for unlimited liability.”

Fortunately, Pierce and his team could identify the “tumor” and cure it before a buyer came along. As a result, there was no significant downgrade or cut to valuation.

Advisory team

Areas to address: internal team, third-party advisories

CFOs will lead the transaction, but even those with past transaction experience will need strong internal and third-party teams to facilitate a sale while running day-to-day operations. 

Before an inbound acquisition arrives, the CFOs “house” should already be in order. The right controller and finance and accounting team should have reporting audit-ready, while the CFO ensures alignment with the CEO and executive leadership on the exit strategy. 

Third-party partners, in particular, are becoming an increasingly integral support system in transaction preparedness. According to our 2024 CFO Survey, 79% of investor-backed CFOs report working with a finance and accounting partner.

While the CFO focuses on higher-level dealmaking activities, a CFO advisory team like Consero provides a team of experienced financial leaders who can offer tactical sell-side support, due diligence readiness, and strategic guidance before and during the exit process. 

Exit readiness checklist

Successful exits depend on the CFO having the bandwidth and foresight to develop a comprehensive exit strategy and plan for the finance team to continue to run day-to-day operations.

For more in-depth guidance, Pierce provides a step-by-step exit readiness checklist for executive teams to follow to be ready when they receive an offer.

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Get exit-ready with Consero

Consero has helped hundreds of PE- and VC-backed companies navigate the exit process end-to-end. As pioneers in Finance as a Service, we specialize in providing the systems, processes, and people you need to scale your finance and accounting function and achieve financial clarity in less than 90 days. Request a consultation to learn more about how we can assist you.

This is part one of a three-part series on exit readiness. Stay tuned for part two.

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