📬 Exit Strategy: Bringing the story to life

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The Mailbag lives and dies by your questions. Send me your trickiest CFO dilemmas (anonymously if you wish) and I’ll answer them here.

👉 Send me your questions by filling out this form.

Now, on to today’s Mailbag.

We’ve got some great topics. Here’s what’s on tap:

Now, let’s get into it.

Kobe from Orange County, CA asked:

I’m the CFO of a multi–eight-figure business, and my priority is positioning the company for an eventual liquidity event—whether through debt, equity, or a full or partial sale. If the business is profitable and performing in line with market benchmarks, what’s the best high-level framework for preparing it for a potential exit to a VC, PE buyer, or strategic acquirer?

Hey Kobe, thanks for the question.

First up, my dog, you need to unleash your inner salesman. It sounds like you’ve built a great business, but “profitable and performing in line with market benchmarks” bores me the f*ck to death. Nobody pays a premium for average.

To maximize value on exit, you need to sell the steak, the sizzle, and maybe even the smell of the restaurant next door.

So, how do you prepare now? At a high level, three things.

1. Think like a PE fund, and leave nothing on the table.

Put a value creation plan (VCP) in place and incentivize the team against it with an LTIP that pays out on a liquidity event. Make sure your plan covers commercial excellence, pricing, product mix, cost efficiency, working capital, and accretive M&A if you can sensibly. I walked through the full playbook recently.

Even if you end up selling to a strategic buyer a robust VCP shows discipline and proves you can grow EBITDA with intent rather than luck.

2. Bring the exit story to life.

Start sketching the Confidential Information Memorandum (CIM) now. Not the final glossy version your banker will create, but the skeleton of the narrative:

This is a visualization exercise. In the best exits I have ever run, the story was built early then the business was molded into that shape over 12 to 24 months.

Figure out the sales story early, then bend and bash the business reality to match the narrative.

3. Start building your investment banking shortlist now.

Not to run a process yet, but to coach you on shaping the story. Your banker has no idea how to execute your VCP, even if they brag in the bar on a Friday night about how easy it is. But… they are very good at telling you what buyers pay for, what your blind spots are, and what will get picked apart in diligence.

In the multi–eight-figure range, you are firmly in middle-market land. That means your best partner is usually a boutique with deep industry specialization. They know every buyer in your niche. They know what multiples are clearing. They will often tell you in the first meeting who is most likely to buy your business, and 80 percent of the time, they are right.

Everything else - data rooms, cleaning legal docs, contract hygiene, audit readiness - matters, but that is value capture work. For the time being, you are still in value creation mode.

TLDR: To prep for an exit, think like a PE fund, build the story early, and bring in the right banker long before you sell. Build the exit vision, deliver it operationally, then run the process.

PS - And since you brought up Kobe… I love this clip of him describing the Mamba Mentality at work:

Nicky from Suceava/Romania asked:

What are the red flags from a balance sheet that every entrepreneur should know?

Nicky, first up, I’m glad you’re asking. You don’t need to review the balance sheet every month, but you absolutely need to understand it and look at it from time to time.

Too many founders don’t understand their balance sheet. Usually, because they think it’s complicated or not important. That’s on finance.

In the early stages, the balance sheet should be simple, clean, and easy to explain. And every founder should be able to understand it at a high level.

Some CFOs will disagree and say, “That’s my domain.” I strongly disagree. If your CFO can’t walk you through your balance sheet in a way you understand, you probably have the wrong CFO. And it’s usually because they don’t understand it properly themselves.

Now, onto your question about red flags. Think about this in two buckets: reporting accuracy and business performance.

1. Reporting accuracy

If your accounting is a mess, it will show up in the balance sheet. Double-entry bookkeeping has been the standard ever since Luca Pacioli invented it in 1494. It’s beautiful because it creates accounting flows as a kind of locked box. You can bullshit a P&L for a little while, but not the balance sheet. Everything lands in cash or reserves eventually.

When there are major accounting issues, the CFO usually loses their job. But so does the CEO. And sometimes the whole company goes out of business. That risk is worth 30 minutes of your time each quarter.

Use what I call the WTFN test:

You point at a number in the balance sheet and ask, “What’s that f*cking number?”

Then you keep asking questions until you truly understand it.

If your CFO avoids the conversation or gives you gobbledygook, that’s a red flag.

Another useful lens: Over time, your net income should broadly track your cash movements. If it doesn’t, there needs to be a very clear reason why, that again, you are able to understand in plain English.

2. Business performance

Once you know the reporting is right, you can read the balance sheet as a performance scorecard. The balance sheet tells you things your P&L won’t.

Working capital

Shows how quickly you turn sales into cash. Red flags:

Liquidity

Cash and debt balances tell you how much runway and flexibility you actually have. A lot of founders only look at cash. They forget the credit card.

Concentration risk

If one customer is 60 percent of AR, that’s a red flag. Same if one supplier dominates AP or inventory.

3. Ratios matter more than the raw numbers

Knowing you have $2m of net working capital means nothing in isolation. But knowing that working capital days went from 35 to 45, and the 10-day jump is because of aging stock, is very important.

Some useful ratios:

TLDR: Get yourself a CFO who can explain the balance sheet to you in plain language.

Looking but not really looking from Australia asked:

How do you think about finding your next CFO role? I'm currently in my first CFO role, in a ~$500m turnover PE-backed business, which is going fairly well. I was able to break in via progression in a large corporation, and then a move across via a lucky break when introduced to a quality C-suite recruiter.

Although I'm not thinking about the short-term, in 3-4 years, I would expect to be looking for my next role, hopefully a larger and possibly listed business. I'm keen to be 'known' in the right circles and hear about what roles are out there, but don't want to put myself out there as 'on-market' only to disappoint when I say I'll need to stick where I am until the job is done. PS, love the weekly newsletter.

Thanks for the question, my Australian friend.

I’ve written extensively in the past about how to find CFO jobs. This post is a good summary of the key themes.

But… none of that really matters for you right now.

You’ve already bagged yourself a great job. A PE-backed CFO seat in a $500m revenue business is not something to be sniffed at. At this stage, any networking tactics or “being known in the right circles” are totally dwarfed by one thing:

Crush this role.

If you land the value-creation plan and nail the exit, your PE fund will fall over themselves to place you in another portfolio role. PE is a small world. They love a trusted operator. If you’re the CFO who helped drive a successful $500m+ deal, you’ll be in their little black book.

I’d also double down on your industry. A $500m transaction can easily become a bellwether deal for your sector. If you do a great job on a landmark deal, you become the CFO who led the XXXX exit. That’s worth more than any carefully curated, “I’m not on the market, but I’m open to conversations” positioning.

With a 3–4 year time horizon, it’s way too early to start plotting your next move. Your body of work is what will get you the next job. And it works both ways. If you f*ck it up, that sticks to you as well. You’ll be explaining why it wasn’t your fault on your résumé for the rest of your career.

Do this role well, and all the opportunities appear after the exit.

Until then, focus on the work. Deliver the value. Create the story you want headhunters to tell about you later.

TLDR: Do a great job in this role, focus on the exit, and you won’t need to be “known.” You’ll be found.

A few of the biggest stories that every CFO is paying close attention to. This is the section you might not want to see your name in.

Things have been a little quiet the last seven days through the holiday season … but you can always rely on the Big 4 to serve us up something:

Sound familiar? Last month, Deloitte Australia was making headlines for producing government reports with AI hallucinated sources. Now, Deloitte Canada is getting in on the fun. You hate to see it (unless you’re one of the other 3).

ICYMI, here are some of my favorite finance/business social media posts from this week. In the words of Kendall Roy, “all bangers, all the time.”:

There’s a new AI sheriff in town…

It didn’t take long for Jeremy Clarkson to see through ERP bullshit bingo:

Let me know what you thought of today’s Mailbag. Just hit reply… I read every message.

And on Saturday, we wrapped up this month’s Playbook series on scaling the finance function by exploring the future of a fully integrated finance function. Check out the newsletter here.

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.