How to maximise the success of a business exit

Here, we look at how to go about getting the best price for your business, on the right terms, at the right time.

Five years ago the term did not even exist. Businesses large and small were not planning for it, the government refused to even contemplate it, and virtually no-one was predicting it. The ‘it’ in question is Brexit, a protean subject that now seems to dominate every facet of our national life, both economic and political. Combined with the unforeseen Trump presidency, the once unlikely Brexit referendum result made 2016 a distinctly unpredictable year, the continued legacy of which is prolonged uncertainty; a theme which seems set to continue in the short to medium term.

Look ahead five years and an estimated one third of SME owners in the UK are planning to retire, sell or pass on their businesses within that timeframe. Yet most of them, despite keeping a relatively short exit horizon in mind, have not even begun to consider their available options in the process. If any lessons are to be learnt from what has happened so far with Brexit, they must be: plan ahead, have a flexible strategy and be prepared for every eventuality.

It is only those who have carefully and thoughtfully anticipated each stage of the business exit process from their business who are likely to overcome the potential headwinds of further unpredictability and attract purchasers who are willing to pay a sufficiently generous multiple of earnings. In doing so, they provide themselves with a much greater degree of certainty about a favourable outcome.

The culmination of hard graft

For the majority of entrepreneurs, the sale of their business comes after years of hard graft. The decision to sell is very personal; by far the most significant and life-changing transaction that they will ever undertake. Yet our research shows that, like so many who did not foresee Brexit, around 70 per cent of business owners have no clear plans whatsoever for managing business succession or, more critically, for preparing a designated route through the exit process. Failure to do so can sharply limit the options for a sale or handover of any business, no matter how successful.

No professional sports captain would lead a team out onto the field without a clearly defined strategy of how to take on the opposition and plot a course to victory. Just like a winning team, operating a successful business depends upon the thoughtful and structured execution of a well-conceived plan that evolves over time and responds intelligently to events. This same approach should be applied in determining a successful exit from a business: meticulous and considered planning overlaid with a clearly defined strategy that is then executed by all parties working together.

There is no simple, easy solution or quick one-line mantra on how best to achieve this result. Instead, the devil is in the detail. But it can be managed. To help owners who want to become sellers, a series of thoughtful steps are needed, each targeted towards a single objective: getting the best price for the business, on the right terms, at the right time.

How can you maximise your opportunities when looking ahead to achieve the type of business exit that works for you? In breaking down the process into a series of steps, each of the following is key:

  • Think ahead. The sooner that you start the process of planning when you want to sell, the more likely you are ultimately to achieve your ambition as to when and for how much. Ideally, a few years’ forward planning is the optimum.
  • Investigate and catalogue every different type of potential purchaser which can be targeted. This should include doing your due diligence on the available options: what is being bought, by whom and why? Potential buyers may be identified according to their strategic fit and their ability to purchase.
  • Identify and understand exactly what potential buyers may attribute value to in a business like yours. Then build value that they will be interested in buying and be prepared to pay top value for.
  • Identify every potential issue that could either frustrate the process or impact upon value. As far as is possible, resolve these issues before starting the sales process.
  • Focus on drivers of business growth while at the same time minimising activities and investment that do not enhance value in the eyes of a potential buyer.
  • Do not limit your options. Although selling to a direct competitor is frequently an option, this can be over reliant on prevailing market conditions. Being flexible about the range of potential buyers can often be the best way to secure the most profitable exit.
  • Do sell while your growth is accelerating. It may seem counterintuitive, but otherwise, you are not leaving anything on the table for the potential buyer. A plateau in forecast revenue and profitability is never attractive so package the business attractively to increase buyers’ appetites.
  • Carry out due diligence on your professional adviser. Ensure that you feel confident that your adviser has the relevant professional experience and knows how to run and close a competitive bidding process. This should include: maximising competitive tension, enhancing valuation and delivering optimal deal terms.
  • Preparation is not something to be rushed. It has taken considerable effort, sacrifice, time and risk to build up your company or business to its present position. Do not therefore leave your final reward on exit to chance.

Every business is unique. There is much to weigh up before you sell it: determining the right time and finding the right buyer needs careful thinking. It can certainly help to seek sound, objective advice about how you can best do this to focus your thoughts, determine your objectives and outline your strategy, while allowing you time to keep running your business.

Taking a step-by-step approach really does work: business sales are far more enjoyable and potentially more rewarding when planned ahead like a leisurely drive with the roof down on a sunny afternoon – rather than a last-minute, mad dash sprint to the line in rush-hour city traffic.

Mark Hardwicke is founder and managing partner at Invenio Corporate Finance.

Further reading on exit plans

Related Topics

Business Exit Planning

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