Do You Have an Exit Strategy for Your Business?
When you started your business, did you have a vision about where it would take you and how you would eventually exit the business?
If not, it is something you should consider and plan for so that you maximise the return on your years of investment; time and money!
There are a number of different options available for disposing of a business and some important considerations to make before you close the door of your company behind you.
Key Mistakes That Sellers Make
- Allowing too little time to complete and successfully execute an exit strategy
- Focusing on price rather than optimising the value of the company and the terms and conditions of sale
- Selling to the first person that comes along without researching the market to find out what potential buyers may be out there
- Trying to do it independently without considering the use of business experts with many years of experience in this field
- Not positioning the business so that it is attractive to a potential buyer
What Buyers Are Interested In
A potential buyer is looking for the least amount of risk and the most return on investment. Therefore the following will appeal to a buyer and make your company more attractive compared to any competitor that does not have these traits:
- A business that is not solely reliant on the owner and can function independently once that person has left the business.
- Unique products, services or processes that make the business more competitive
- A strong management team that can continue to take the business forward (sometimes a professional investor may place their own team of people within a business to help its success)
- A well defined and differentiated market place and strong position within it (maybe not the leader but certainly a recognised player)
- A diverse and stable customer base – not reliant on a few customers to sustain the business
- Recurring revenue business model
- Potential for growth into identified markets
- Strong financial position: cashflow, operating margins, profitability
- Quality business systems and processes particularly with regard to financial reporting (regular management accounts and cashflow forecast)
The Various Selling Options
There are a number of different options available to you if you are looking to sell your business or release capital from it:
- Public sale on the open market to attract strategic investors, competitors, overseas buyers looking to enter a new country for example
- Liquidating shares in a business to realise your return
- Merging the business to increase the value or market place
- Management Buy Out (MBO)
- Succession to family member or employees
- Floating the business on the stock exchange
- Gifting the business to meet personal and/or tax planning goals
So if you are looking to sell your business there are many options, considerations and potential pitfalls for you to think about. If it is not something you have done successfully before it may be wise as a business owner to engage with a professional.
The business owner who engages professional advisors, plans thoroughly, and negotiates to ensure that the wealth transfer mechanism chosen most closely delivers on his goals, is the business owner who will have executed the optimal exit strategy.
Paul Green specialises in business planning and strategy. He is a founding partner of UK Business Advisors and Fellow of the Institute for Independent Business. Primarily he works with SME business owners offering practical, hands-on business advice to help companies survive and thrive. He is the author of the recently published book 50 Essential Business Advice Tips To Prevent Your Business From Failing (PDF)