Colin Mills shares his top tips on achieving a smooth exit strategy.
Getting a solid exit strategy in place is probably one of the most important aspects of your future, but what you perceive your business to be worth is often based more on emotion than hard facts. So, rather than leave it to chance, start planning your exit with our ten tips.
1. Start at the End
As you build your business, start with the end in mind. Your exit should be integral to your long-term strategy – the more time you've got, the better.
2. Take Advice
Make sure you understand what your business needs to deliver financially to achieve your personal objective. Understand the difference between the value you want against what you need to realise from the business. Invest time and money in getting the right advice.
3. Position the Business
Take a long-term view of your business to position it within its sector and identify unique selling points. This can also help you identify likely buyers, and what they want to achieve through an acquisition, as well as maximising your operating profits in the run up to an exit.
4. Become the Buyer
Look at your business objectively from a buyer's perspective. For instance, a buyer always wants a business with minimal risk. Identify what needs to change within your business to make it attractive.
5. Get in Shape
Is the structure of the business attractive to a buyer? To avoid problems later, enhance your business processes, change organisational structures where necessary, get the correct people on board and deliver on your forecasts.
6. The Importance of Management
Most exit plans fail. Not because there's anything wrong with the strategy, but because management don't execute the plans effectively. Your potential buyers will place great value on the strength and resilience of your management team – so choose them well.
7. Know What You're Worth
You must show what's been achieved by the business and the value it has delivered. It should paint a clear picture of the extra value that can be gained. The value that an acquirer puts on a business could be a) an acceptable premium over the cost of setting up themselves, b) the price of acquiring a similar business from someone else or c) simply £1 more than someone else who wants to buy the business is prepared to pay.
8. Financing the Deal
Understand how the deal will be financed. Traditional sources of acquisition funding are drying up. This impacts on the market value of a business, as funding is key to the amount a buyer will be able to pay.
9. Demonstrate Performance
It's important to demonstrate your business performance to date. This will significantly improve your chances of completing a sale. Present full management accounts and forecasts, with a complete record of business assets, liabilities and contracts.
10. Get the Right Negotiation Team
A good negotiating team will manage expectations of the value of the business to ensure it is achieved. Check that your exit forecasts are rock solid, or they'll be used as leverage to reduce value at the negotiation stage.
Finally, make sure your management team fully understands the exit process and that there's a good finance director in place to help make it happen.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.