Growing a young business can be challenging, with seemingly endless demands on your time. With so many issues to deal with just to ensure short-term growth and success, it may seem strange to start thinking about a longer-term exit strategy that will take place at some point in the distant future. However, the mantra that 'it's never too early to prepare for an exit' holds particularly true for high-growth companies that can attract the attention of potential suitors early on in their lifecycle.

It is also important to plan and structure your exit or succession well in advance so as not to lose out on the various government-sponsored tax reliefs, such as entrepreneur's relief which can reduce a tax liability from 28% to 10% of the gain.

Below are some simple steps that can help you prepare for an exit when the time comes.

Know and control your strengths

As the owner of your business you know what contributes to its growth, but how much control do you have over its strengths – and can you use them to create value? Some simple ways to protect and enhance value include:

  • safeguarding any unique resources, such as intellectual property, by legally protecting them
  • outsourcing only non-core activities, keeping key functions in-house and incentivised to stay within the business
  • ensuring that customer relationships can be maintained following your exit – particularly if your business revolves around a small number of key relationships.

Don't overlook the 'housekeeping'

All too often within fast-growing companies, housekeeping, such as appropriately drawn employee contracts governing the ownership of the intellectual property they create, takes second place to chasing commercial opportunities. More often than not, the issues that cause an exit to flounder were known about all along – the owner had simply hoped they would go away or go unnoticed.

This rarely happens, so it's important to address them as you go along and not at an advanced stage of the exit process. Speak to your advisers early on; it's unlikely that you will be raising an issue that they've never seen before.

Regardless of the type of exit, potential investors will aim to scrutinise your business records through due diligence processes prior to any transaction completing. Any uncertainty will cause a reduction in perceived value, so accurate records are essential. If necessary, outsource such functions to ensure the integrity of your information.

Have a vision of your ideal buyer

Work with your advisers to understand the different types of buyers and think about what might make your business an attractive opportunity for them. If you're able to demonstrate that you can add value to their business model, you make your business a far more enticing target. At the same time, avoid the temptation to over-groom and, remember, most buyers are sophisticated enough to differentiate between a business with an attractive market position and a business positioned to look attractive.

Always have an alternative

The overriding rule when timing a sales process is to sell when you don't need to. A lack of perceived alternatives empowers the buyer and, even where an early exit is on the cards, a viable business plan mapping out a future as an independent business has an important part to play.

Finally, remember that successful exit strategies can sometimes take several years. The merger and acquisition transaction is the final stage of this process, by which point, most of the opportunity to position your business will inevitably have passed. So, start early and consider whether the insight and experience of advisers can help you on your journey.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014.