Articles

“Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.”  Aesop Author 620 – 560 BC

Having established a solid business, which still has plenty of potential to grow further, how and when should you implement strategies for grooming the business for eventual sale or for succession, so that you get best value? There are a number of tactics and measures that can enhance the value of the business if you have a specific timetable to exit. The best approach is to start implementing the exit strategy two to three years before the sale or succession, particularly if you need to recruit and coach new management. If the exit is more imminent, there are still several methods available to maximise value. But first: The three factors that would have the most negative impact on sale value:

1. You are the business – there is no quality management left when you leave the business, and you have all the know-how
2. The business has not been systematised – there are few controls and procedures in place
3. There are skeletons in the cupboard – such as personal assets in the company, litigation, obsolete stock, or payment problems

It is therefore essential that you can hand over a well-managed, properly controlled and clean business.

Key actions and steps prior to exit are as follows:

• Be realistic on future value – be realistic not over-optimistic
• Plan for various exit options – family succession, management buyout, trade sale, or even flotation – research your market

 Consider:

• Personal objectives – e.g. retirement annuity need
• Your level of risk tolerance
• Family objectives – many potential successors may no longer be interested
• Company objectives
• Dispose of non-core business or assets – rationalise
• Timing (sell at or just before peak!) – sell when you’re strongest
• Aim for consistent profit growth over the period to exit
• Look at building the profile of the business so it gets onto potential external purchasers’ radar
• Avoid over-reliance on a few customers, and diversify the suppliers too if necessary
• Protect Intellectual Property rights e.g. trademarks, patents
• Succession – be very careful if splitting shares between children – e.g. also bring in an outside shareholder who is well-experienced and mature, perhaps as chairman
• Keep existing management and staff informed and onside
• Recruit better managers if necessary – aim for excellence
• Allow plenty of time to groom your management
• Get good professional advice!

Exit and succession planning will help avoid many of the mistakes when selling your business. We have created a 10 point check list to aid you in the process.