Developing an 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. Start with the “end game” in sight – aligning your personal goals with your business goals in order to know whether or not it’s worthwhile to go to all the trouble of selling your business. Many deals fall simply because the business owner finally realises that their lifestyle is facing a massive change for which they haven’t thought through, or they realise that they are not going to achieve the amount they really need in order to retire or move on.
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 maximise value, the general day to day running of the business needs to be run by someone other than the owner eg a General Manager or the management team – if a buyer perceives the business owner to be “the business” then the element of risk comes into play where the business may not be as saleable or as valuable as you might think – the higher the risk, the lower the value. The same applies where there is reliance on one or two key customers responsible for more than 20% of turnover. When planning for a sale, it’s essential to look at what you want to achieve (Objectives) and then work backwards to see how you are going to achieve them (Strategies), backed up by Action Plans.
How much is the business worth?
As many accountants do not provide a business valuation service, an independent valuation from a qualified Valuer is the way forward which will allow you to realistically assess whether or not it is time to sell in the first place, take tax advice and to judge whether or not the offers are realistic or not. A valuation report may help with negotiations if an offer price is below expectations.
What type of sale of sale should be considered?
Once the business value is understood there are several ways to exit a business and some thought needs to be given to these. For instance, a Management Buy Out (MBO) may sound quite appealing with a buyer already in place. But what about potential offers from trade 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! Offers from 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.
Your Exit Strategy starts here…..
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