When should you begin to prepare for the time you sell or leave the business? Ideally, the moment you establish the business.
PLANNING for exit is crucial and, ideally, you need to start considering your options from the moment that your business is established.
Yet many owner-managers overlook this maxim as they understandably focus on the day-to-day pressures of running the business. Whether you are approaching retirement age or simply considering an interesting new venture, there will come a time when you have to give serious thought to your exit strategy. The key is to approach things in a considered and methodical manner.
Reasons for selling
Some businesses grow so quickly that they move beyond the skill set of the owner-manager. The increased value of the business could lead you to consider the advantages of cashing in while the going is good.
In a consolidating market, potential buyers are likely to be easier to spot and they should be able to have a clear picture of the benefits of increasing their market share or moving into a new geographical market.
Perhaps you’ve developed an excellent business, service or product but without additional funding you can’t exploit the opportunity. Where venture capital is the only option, some owners prefer to sell at this stage rather than take the risk of the next stage of development.
Other successful businesses may have the potential to reach a much wider market and one option could be to merge with a larger firm that can provide a route to those opportunities. The important thing, of course, is to agree on a financial deal that benefits both sides – so you gain as much from it as your bigger partner.
Conversely, if your business has been performing poorly it could result in a sale to a supplier that needs to ensure it can still get access to market or maintain market share.
For some owner-managers selling up is a purely financial decision: whether based on further capital for expansion or under-performance. For others, like family firms, there may be no alternative when there is no immediate successor. Long-established family-owned companies can often have a lot of shareholders who receive small dividends but play no role in the day-to-day running of the business, so they may be keen to cash in, perhaps resulting in a management buyout.
Whatever your reason for selling up, you need a clear idea of what you want to achieve. Start by considering whether the following are important to you:
• keeping your name above the door
• financial security
• exit without ties
• early retirement
• management buyout
• the future for your employees
• maintaining relationships with customers and suppliers
The list is endless, so it may help to sit down for a planning session with your adviser. There are many things to consider and some aspects will most likely be unique to you and your company.
In a consolidating market, potential buyers are likely to be easier to spot and they should be able to have a clear picture of the benefits of increasing their market share
Attracting interest
Having made your decision, you need to address whether your company is ready for a sale. Preparation is essential and so-called ‘grooming’ can take several years, although this will still be important even if you have less time.
Essentially, there are five aspects of your business to consider:
• strategic
• financial
• people
• legal
• shareholders
You shouldn’t let your exit plans drive your corporate strategy and you will still need to develop a clear and effective plan for future growth, ideally selling at a time when it is clear the growth targets will be met.
Address any problems that may have an impact on the final valuation, perhaps closing or selling any smaller businesses or departments with no clear strategic fit. And build the business in areas that are key to value enhancement to increase the likelihood of a successful sale.
