For many entrepreneurs, their business is their biggest asset and achievement - so I don’t blame them for wanting to get the best price. In my career, I’ve successfully helped build and exit three businesses and through my experiences I’ve been able to define what tactics work and don’t work when creating an exit strategy.
Here are things to keep in mind when preparing for your exit:
1. Time it right. A company sale takes around six months and should allow for the production of year-end results before the close of a process. Plan for your exit 12 months beforehand and ensure that your proposition has strong business performance, high sector growth and buoyant M&A conditions.
2. Put financials in order. Transparency within your financial model is crucial. Align the management and statutory accounts and clearly explain any blips in the numbers. Record all expenses and investments and make sure your forecast is a stretch but achievable and backed up with data-driven assumptions.
3. Maximize profits in the timeframe. Boost short term sales by focusing your sales team on high-margin products. Incentives always help with this. Then, analyze “non-operating” costs and cut whichever will not have a negative impact on profitability in the following year.
4. Understand your exit strategy. Do you want a trade or a private equity sale? A refinancing or IPO? Your exit strategy will vary according to your end goal.
5. Target buyers who will pay more. If you were a buyer, what would you value most in your business? Enhance these aspects and reposition the business towards the sectors where you have the highest multiple - whether that be multiple profits, revenue multiples, etc.
6. Ask yourself: Do I have the right management team? If the manager or owner is leaving, the team left behind should be ready to present the business and it’s plan for taking it forward. This is particularly relevant for private equity-backed deals.
7. Prepare for the sales process. Separate the roles of those who are running the business and those who are managing the sales process. Focus the board on five priorities that are either related to maximizing the value of the company or to facilitating the sales process. Important things to consider include consistency, data-collection, documenting process and developing a strategy that increases visibility.
8. Determine a realistic valuation. Be realistic about your valuation expectations. Look at comparable companies and transactions and see how closely comparable they are with your company and transactions.
9. Leave no surprises for the buyer. Frame your weaknesses as works in progress instead of brushing them aside. You want to make it past the first stage of due diligence, and more importantly, you don’t want to lose your credibility.
10. Study the balance sheet and remove surplus assets. From a valuation perspective, assess whether it makes sense to sell property separate from the business or with the business. Remove investment and all other surplus assets as tax effectively as possible. Take tighter control on debitor, creditor and stock management.
Selling your business effectively and for the most money requires proper planning and advisement. However, if you get the process down and you get what you’re asking for - it will be one of the proudest moments of your life.