Are you a business owner dreaming of a successful exit? Perhaps you envision a comfortable retirement, pursuing a new venture, or simply handing over the reins to a capable member (or members) of your team.
Whatever your aspirations, the key to maximising your business’s value and ensuring a smooth transition lies in one key point: early exit planning.
Don’t make the mistake of thinking about your exit only when you’re ready to sell, this can cause real problems that affect the valuation of your business and your motivation as a seller.
It can often take years to prepare, sell and then hand over your business, so deciding one day after a stressful week at work that you’ve had enough is one of the worst business decisions you can make.
Let’s look at why starting your exit strategy years, not months, in advance is essential and discuss some actionable steps you can take to prepare your business (and yourself) for the exit process.
1. Building a Solid Foundation
Acquirers are looking for stability, growth potential, and a business that doesn’t rely solely on you. Building this takes time and planning.
- Actionable Advice:
- Begin by documenting your business processes. Systematise operations, delegate responsibilities, and empower your management team. If you don’t have a management team, then start to delegate responsibilities to other members of the team and look to promote them before a potential sale.
- Aim for consistent, demonstrable profitability. A strong track record of healthy financials is expected by acquirers and increases the value of your business. The more profitable you are, the more your business will hopefully sell for.
- Identify and address any potential weaknesses in your business early on. This could involve streamlining operations, improving financial reporting, increasing margins, talking to customers about contracts, or enhancing your customer base.
2: Mitigating Key Person Risk: Building a Business That Thrives (and Survives) Without You
Buyers are very sensitive to ‘key person risk. That is the vulnerability of a business heavily dependent on a single individual, often you, the owner.
Planning for your exit in advance gives you the time to mitigate this risk by handing over responsibilities to other members of your team and reducing your time spent in the business. This allows you to demonstrate that you aren’t integral to the running of the business and can make the business more attractive while leading to a quicker exit.
- Actionable Advice:
- Develop a robust, independent management team. Allow them to have clear decision-making authority and accountability. This demonstrates that your business has depth and resilience.
- Create comprehensive operational manuals and detailed knowledge transfer plans. Ensure that critical processes and expertise are documented and accessible to multiple team members and potential acquirers (once vetted and under an NDA).
- Consider appointing a strong number two, someone who can take control of the company if needed. This shows a buyer that there is a solid succession plan in place.
3. Growth, Scalability and Profitability: Demonstrating Future Potential
Buyers are not just interested in your current performance; they want to see future growth potential.
When entering a sales process, you must still run your business like you would at any other point; never lose focus on growth and profitability, which are key drivers in valuation.
Scalability is also a key consideration, and the ability to demonstrate how a potential acquirer could scale your business is an important aspect.
- Actionable Advice:
- Explore new markets, products, or services.
- Invest in technology and innovation to enhance efficiency and competitiveness.
- Develop a clear growth strategy and document it.
- Make sure your internal finance support (if they have the capabilities) or your external accountants produce timely management accounts and financial forecasts.
4. Financial Clarity: Preparing for Due Diligence
Due diligence is a critical part of any M&A transaction. Potential buyers will scrutinise your financial records with a fine-tooth comb. Preparing early and having good record-keeping is essential to reduce stress and make a transaction as smooth as possible.
The financial due diligence aspect of the deal is often the most stressful, and normally the point at which you’ll wish you’d never bothered starting the process in the first place. Early planning and preparation will make the process (slightly) less stressful.
- Actionable Advice:
- Ensure your financial records are accurate, up-to-date, and compliant with UK accounting standards.
- Run the business and manage the finances like it could be acquired tomorrow, even if the plan is not to sell for several years. You never know who might approach you out of the blue, and running a business that is ready to be sold at any time will generally make it more profitable.
- Address any potential financial red flags or irregularities proactively.
5. Building Relationships: Key Customers and Suppliers.
Buyers will want to know that key relationships will continue after the sale of the company. This is where we loop back to point 2, hand over relationships and account management to responsible and capable members of the team well in advance of any sale.
It is fine to still be the main contact for reviews and relationships, but you need to make sure you have people in the team who can carry on those relationships and ensure that there is as little disruption to normal service as possible post-acquisition.
- Actionable Advice:
- Maintain good relationships with key customers and suppliers. The chances are that you will be asked to stay with the business for a handover period, and a huge part of that will be ensuring a smooth transition of customers and continuity of services.
- Ensure that contracts are up to date, and where possible, that they don’t include a clause concerning a change of ownership. If contracts do have that clause, understand what it means.
- Make sure that there are backup plans in place if key relationships were to change.
Early planning is not a luxury; it’s a necessity. By starting your exit strategy years in advance, you can build a more valuable and saleable business, reduce risk, and ultimately achieve a more successful and rewarding exit.
Don’t wait until it’s too late. Begin planning today and put yourself in the strongest possible position for the exit you want and deserve.
Are you ready to take control of your exit strategy? Contact our team of experienced advisors for a confidential consultation below:
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