Every business owner will reach a point where they need to exit their business, and like most things in life, if this event is planned for, the outcome is more likely to be better than something that ‘just happens’.
There is more than one way an owner may exit their business (e.g. via a trade sale, passing the business to a family member, listing the company on a stock exchange or merging with another company) and it is important to consider which way best meets your longer-term goals.
Indeed, you may well wish to take time to confirm what your long term goals are as a starting point to this exercise.
This review may require you taking advice from a variety of sources, to identify what options are open to you (e.g. the relative you plan on leaving the business to may not actually want to run it), and then to understand the pros and cons of each route.
Having decided which form of exit best fits your needs, it is then important to consider how best to position your business so as to make the exit process as smooth as it can be. There are a number of factors to be considered here.
When the business is sold or transferred, it is essential that key documents are readily available and are in the correct format. This enables the buyers and / or advisors to quickly satisfy themselves about the good health of the business and be clear about what they are acquiring. The sort of documents that will be sought will include:
- Copies of key customer, supplier and employment contracts
- Copies of statutory and management accounts (along with explanations for trends and variances)
- Copies of tax returns (ideally showing all filed on a timely basis)
- Details of any tax audits
- Details of any litigation
- Proof that all statutory filings are up to date along with copies of board minutes
These may well need to be in digital format to facilitate sharing with advisors, and this is something that can be built up gradually over time rather than having a mass scanning session at the last minute. It also means that where documents are missing, you are allowing yourself plenty of time to track down replacement copies.
Developing the Business
In order for the business to be attractive a potential buyer, or to list the business, you might need to demonstrate things like growth in sales and EBITDA (earnings before interest, taxation, depreciation and amortisation – a measure that is used as an approximation for cash flow) or need to meet other hurdles.
In order to deliver these measures, it is important to develop a business plan and a series of budgets that between them, identify the strategies and tactics need to bring about the desired sales and profit growth.
This will be an iterative process, responding to setbacks and capitalising on opportunities, but the overall thrust is to make sure the business is heading in the right direction and the results reflect the story you want to be able to tell to a potential buyer.
Such planning is very much a medium term exercise and should be undertaken at least 2 to 3 years ahead of any intended exit, as you need to allow time to build up a solid track record. During this phase, you should also consider tax planning as there may be opportunities to legitimately make the business structure more tax -efficient and allow time to implement any changes.
Business exits can be very time consuming and will certainly impact on your and key managers’ time, while the day to day operations, the key aspect of your business, will still need to be controlled. Time should be made ahead of any exit to consider ways of developing any junior staff so that they are capable of keeping the business ticking over while you are dealing with the management of the exit process.
Ensure staff are aware of what budget goals are and have the key skills that mean they can “act up” if required so they can make intelligent suggestions in cases where they need your sign off on things rather than looking to you to do everything.
Developing staff in this way will also make holiday periods easier to cover, and will probably lead to a more motivated workforce, so is something worth doing anyway.
Marketing and Brand Awareness
Look for ways to build your business’ brand awareness within the market, ensuring regular good news stories are featured in local trade publications, social media campaigns and digital marketing activities, as this will help gain the attention of potential buyers.
Shortening the Odds in Your Favour – Always a Good Thing
At a point before you actually anticipate triggering an exit process, it may well be worth considering hiring someone to carry out a due diligence exercise on your business. Think of this as a bit like having a survey carried out on a house you are considering of buying. The person will review all of the documentation available and review the general state of the business and feedback their findings.
The advantage of having this done ahead of any transaction is that if any problems or concerns are identified, solutions can be developed and implemented. This is important, as issues coming to light during price negotiations can at worst kill the deal, or will certainly not help you achieve the best exit price.
How EFM Growth can advise business owners embarking on this process
While the above points may sound very time consuming and technical, it is possible for small business owners to get support working through these activities with an outsourced Growth Partner who has M&A and Exit Planning experience.
The amount of time they spend with you is flexible and can be tailored to meet your needs and fit budget. Selling your business is a serious matter and needs to be undertaken thoroughly and logically. We understand it can be an emotional process too, which founders don’t always expect.
Exit planning is like any decision, there is a clear ROI which is extremely positive when an Exit is planned properly in advance. If you need help devising the right strategy for your business, then get in touch with EFM Growth.
Our team of experienced Growth Partners will enable you to maximise the value of your business and avoid a shock exit.
You only get one chance to exit-successfully so why not contact the central team via firstname.lastname@example.org or call 01582 516300 to help make sure that happens.