Developing a Safe Exit Strategy?
The thought of exiting a business may sound quite appealing but unless some careful thought and consideration is given as a business owner, you may end up walking away with less than you might expect. No one would try and complete a journey without some form of planning in order to reach a destination and the same applies here. Basically, when the times comes to sell a business, no one wants the deal to fall through at the last minute because of revised offers or because the buyer has been disappointed to find out that everything is not as it seems from their due diligence work.
Planning for a Sale?
Ideally, the exit strategy needs to form part of your overall plan for the business so that key areas can be identified and dealt with. So exactly what are the key areas? To some extent, it depends on the type business as the due diligence used by the buyer will vary. For example, a manufacturing business will have a critical supply chain and facilities with specialised production techniques and processes, whilst in service based businesses, customer relationships are more likely to be key. With any acquisition strategy, the key issue is to consider exactly what information the buyer needs, in order to be comfortable with the targeted business and the offer being made. Currently, there is an increasing trend towards “commercial due diligence”, alongside financial, tax and all the legal enquiries.
How much is the business worth?
Once the areas likely to be covered by due diligence are understood and addressed there’s a lot more to take into account such as the actual value of the business. Many business owners rely on a business broker to provide the valuation without realising that they have a vested interest in inflating the values in order to try and win up-front fees. This just leads to disappointment when offers finally come in, so this could be a trap well worth avoiding. An independent valuation is the way forward which will allow you to realistically assess whether or not it is time to sell in the first place and to judge whether or not the offers are realistic or not and perhaps more importantly, will allow you to substantiate the asking price.
What type of sale of sale should be considered?
Once the business value is understood and the asking price determined, what about the type of sale required? There’s several ways to exit a business and some thought needs to be given to these too. For instance, a Management Buy Out (MBO) may sound quite appealing with a buyer already in place. But what about potential offers from buyers who are prepared to pay a premium for a strategic acquisition? The starting point here, is a clear understanding as to whether or not the management team will have the appetite, ambition and leadership capability to grow the business, followed by access to finance as otherwise it’s no deal! In this case, other forms of exits such as a Management Buy In (MBI) or Trade Sale might be more appropriate – and it may be that one offer from half a dozen potential buyers could be double that of the others.
For more information on how to develop a business as part of an exit strategy, please click on the following link:-