Preparing Your Business for Exit: A Practical Guide

ARTICLE | September 15, 2025

Summary: Thinking about selling your government contracting business in six to 24 months, or five years? This practical guide to preparing your business for exit covers when to sell, how to assemble the right deal team, what financial readiness really means, and how valuation and diligence shape outcomes.

Start With the End Game (and Your Ideal Buyer)

As a government contractor, the path to successful exit starts years before you sign a Letter of Intent (LOI). Begin by defining what ‘success’ means to you. Consider timing, your post-close role, cultural fit, and who the likely buyer is (i.e., strategic, private equity, PE-backed platform, etc.). Your target buyer profile shapes how you prepare, what you emphasize, and how you structure the deal.

Owners who begin preparing their business for exit two years out have time to backfill leadership if the founder plans to step back, align the board, and shore up processes that buyers scrutinize. In many cases, the transaction timeline only really starts about six to 12 months before launch, but early planning helps you control the narrative, as opposed to what is more common – reacting to it.

Build Your A-Team Early

When preparing your business for exit, it’s critical to not try to go it alone. Experienced buyers execute dozens of deals a year. They often arrive with bankers, lawyers, and due diligence specialists who know the playbook for the business. Level the playing field for yourself by assembling your own team of strategic planning and advisory professionals that includes:

• An investment banker to quarterback the process, run the market, and drive the schedule.
• An M&A attorney specializing in selling businesses to navigate proposed structure, representatives and warranties, indemnities, and regulatory nuances.
• A transaction advisory/accounting specialist to help mitigate risk, realize value, and support sell-side due diligence.
• A wealth advisor to align after-tax proceeds with your personal goals.

With your core team assembled, you will be better prepared to achieve your goals and have your perspective represented.

Pick the Right Time to Sell

There is no universal ‘perfect’ market. The right time to sell your business depends on a number of factors including: momentum, backlog visibility, contract timelines, and funding outlook in your specific niche. When you enter the market from a position of strength (e.g., when revenue is growing, margins are stable, the pipeline is credible, and you are not forced to sell by a cash crunch or a triggering event, etc.) you are more likely to realize the value for your business.

Benchmark your segment’s demand drivers, budget cycles, and competitive dynamics. If key contracts have pending recompetes or heavy option-year risk, consider de-risking before launch. Conversely, if you are enjoying outsized growth and strong win rates, consider pulling the process forward to capture the multiple that momentum can support.

Financial Readiness: Make Your Numbers Investible

Buyers don’t pay for potential they can’t see. When financial and management reporting is low-quality or incomplete, buyers assume risk, widen diligence scope, slow down the process, and push more value into escrow or earnout. On the other hand, transparent, high-quality financials make the same business more investible and could potentially command a higher price.

You can put your business in a beneficial position by focusing some attention on basic clean-up. Get ahead of some of the surprises that commonly emerge during buyer diligence by addressing ‘monsters in the closet’ ahead of time:

• Identify and consider consistent categorization of non-recurring, discretionary, or owner-related expenses
• Revisit and/or enhance revenue recognition policies and procedures
• Accounting hygiene: ensure timely and consistent accounting close and account level reconciliations with monthly and quarterly to-do lists
• Documentation: see that policies and procedures are up-to-date and in writing
• KPI visibility: identify and track key company-wide and contract-level metrics in a management-friendly format
• Working capital efficiency: consider collections experience and vendor terms

While these are representative housekeeping examples for government contractors, each business will have its own to-do list.

What Really Drives Value (and What Does Not)

Timing and preparedness are key to exit planning. Another key consideration is valuation.

Keep in mind that valuation is date-specific and context-dependent. Enterprise value indications for federal contractors can be developed using traditional methods like guideline M&A transaction data, public company valuation multiples, and discounted cash flow models. Traditional valuation techniques such as these will take into account a company’s risk profile and general value drivers such as size, diversification, management depth, and growth potential.

In a transaction setting, market and negotiation dynamics come into play, and differences between value and price can emerge. For acquisitions involving government contractors, buyers will weigh a variety of industry-specific value drivers. Examples include, but are not limited to:

• Contract mix: fixed-price vs. T&M vs. cost-plus, and the impact on profitability
• Revenue visibility: backlog, option years, recompete risk, and new business pipeline
• Customer and contract concentration: number of customers, contracts, contract vehicles, and relative significance
• Capabilities and talent: scarce skills, sought-after credentials, and bench strength
• Technology: unique IP and proprietary methods

Ultimately, enterprise value for a government contractor is largely a function of sustainable EBITDA and cash flows. Strong historical operating results are important, but equally or more important are prospective operating results. From a sell-side perspective, understanding where financial and operational risks to your forecast lie, and taking steps to mitigate those risks, will help sustain EBITDA and maximize value.

Avoid Surprises: Do Your Due Diligence

When you decide to embark on a sell-side process, expect turbulence. Timelines shift, questions multiply, and new information emerges. On the financial side, common flashpoints include owner expenses, inconsistent revenue recognition, lackluster project cost tracking, and unsubstantiated add-backs. Address these up front or run the risk of a buyer pricing the uncertainty against you.

Sell-side financial due diligence often pays for itself by surfacing value that a buyer might otherwise keep to themselves. Potential buyer red flags can be neutralized before launch through a quality of earnings (Q-of-E) analysis. Examples of such red flags include:

• EBITDA adjustments for discretionary expenses without clear add-back support
• Lack of monthly close discipline
• Unreconciled accounts (e.g., unbilled receivables or deferred revenue balances that don’t tie to contracts)
• Customer concentration without proper context

Most deals involving government contractors are structured on a cash-free and debt-free basis with normalized working capital left in the company at close. EBITDA adjustments can also lead to corresponding working capital adjustments. As part of the Q-of-E, adjusted working capital can be modeled together with adjusted EBITDA for internal consistency.

A 6 to 24 Month Action Plan for Preparing Your Business for Exit

Having considered factors around planning your exit strategy, it’s time to consider a detailed action plan to follow as you prepare to exit your business. An illustrative action plan follows below, but keep in mind that your action plan and the timing of specific actions will depend on the facts and circumstances of your business.

• 18–24 months out
  • Define exit goals; identify buyer universe; align shareholders and the board.
  • Consider desired post-close management team roles; begin leadership succession planning if the founder plans to transition out; formalize responsibilities and incentives.
  • Stand up monthly close cadence, KPI dashboard, and contract-level margin tracking.
  • Build or refine contract revenue waterfall reporting structure and set a schedule for updates.
• 12–18 months out
  • Engage transaction advisors to scope a sell-side Q-of-E and working capital baseline; remediate control gaps.
  • Map customer and contract concentration; create mitigation plans for top exposures.
  • Build relationships with investment bankers; check in quarterly for market reads and buyer feedback.
• 6–9 months out
  • Finalize your A-team: banker, M&A attorney, accounting/Q-o-E, tax, and wealth advisor; align on roles and calendar.
  • Prepare the CIM, management presentation, and a structured data room with organized contracts, financials, and policies.
  • Pre-answer likely diligence questions.
• 3–6 months out
  • Launch the process; prepare for management meetings; maintain weekly cadence with advisors.
  • Align on transaction structure: earnout vs. cash, after-tax proceeds modeling, etc.
  • Keep running the business—buyers pay for uninterrupted momentum and execution against the plan.

Final Thoughts on Preparing Your Business for Exit

Exits reward preparation, so don’t wait until it’s too late. Set your end game, assemble an experienced team, make your numbers transparent, and anticipate where prospective buyers are likely to focus their diligence. Those steps do more than reduce friction; they can meaningfully increase certainty and positively influence valuation and deal terms. Start now, operate with clarity, and control your outcome.

Please connect with your advisor if you have any questions about this article.

This article was written by Aprio and originally appeared on 2025-09-15. Reprinted with permission from Aprio LLP.
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