When is the right time to start thinking about leaving your business? Have you even considered it? If you have, then do you have a clear strategy in place? Would you even know how to go about realising your company’s true value? In this blog we talk about the essentials of exit planning.
You’ve spent a lot of time building your company, investing blood, sweat and tears into creating something that you are passionately protective of. However, the time will come when you’re looking for a new venture, want a better work/life balance or are ready to retire. Whichever reason, exit planning is a necessity if you are to maximise the saleability of your business.
A properly prepared business sells, on average, for 71% more than it would without any fore-thought or planning.
Here are some fundamental considerations needed when building your exit strategy.
What Do Buyers Expect?
If you’re starting to build an exit strategy, you are looking for someone to purchase the business. Consider what perspective buyers will be looking for when evaluating a potential buy out. What are they going to base their valuation on? Does your business have scalability and a forward thinking strategic plan? What is your business actually worth to them?
The most basic requirement buyers will be looking for is a profitable return on investment. Consider how profitable your business currently is. The common pitfalls of business sales stem from owners being unaware of the true value of their business. Do you know your true EBITDA, your asset value, your overhead costs etc.?
With 80% of businesses failing to sell, an exit strategy must be carefully considered, with a focus on what your buyer is looking for and whether they can see a future in your business.
Circumventing Carbon Copies
If your business is part of a breakthrough industry you could strike gold. Buyers seeking to purchase aren’t looking for a carbon copy. They’re looking for exciting potential and a solid USP. As part of planning an exit, you will need to consider how easy it is to replicate, and how diversified, your products and/or services.
Easily replicated businesses become de-valued and end up fighting a discount price battle with competitors. Being able to purchase a company with unique services or products, and a varied portfolio, will be more appealing to buyers, as they will be able to see greater scope and opportunity.
Is your business ‘self-sufficient’ in its current state? Consider your exit. If you are looking for a new venture, want a better work/life balance or are settling into a well-earnt retirement, would the new business owner be able to continue running the business based on the solid procedures you have in place? Have you got effective quality and organisational systems underpinning your business?
Buyers might insist on conditional offers, basing these on future business performance. If your business relies heavily on you, now is the time to tighten up your procedures. Start removing yourself from each decision process, spreading the responsibility within your company. Have an effective management operating system that puts the onus on system control rather than any individual.
The average business sells for 71% less than it should, with only one in five businesses making it to sale. Your decision to sell may be one based on need, due to illness or emigration, or one based on extracting a healthy pension pot. Whatever the reason, plan your exit as far ahead as possible, and ensure that you have a robust exit strategy.
Your strategy should take into consideration a timeframe, giving ample time to focus on any underlying issues in the business, tightening processes and ultimately adding value.
The typical time to sell a business is 12 months, but planning your exit strategy should ideally start five years before you are ready to sell so the changes you make have time to show through in your profits. How much time do YOU need for your exit and what is the figure you’re looking to sell for?
Whether long or short term the decisions you make today will affect the value of your business when you are looking to sell or plan your exit strategy.
No matter the reason behind your decision to exit, contact Business Partnership today. We take confidentiality seriously and would welcome a conversation to assist you with strategic exit planning. And don’t worry if you haven’t got 5 years before you sell, there will still be things we can work on in the short term that will have a positive effect on your business sale.