Planning and exit strategy

Exiting your business and selling it can be an excellent way of ensuring its future and rewarding yourself financially for your many years of hard work.

But it’s critical that exiting your business is a strategy, not an impulse. A quick sale will invariably leave you short-changed.

For this reason, once you’ve decided and announced your plan to exit the business, every strategic business decision you make from then on, and all your business plans, must be geared to achieving this objective – optimally.

And it’s critical not to underestimate the challenges and time necessary to overcome them.

As a business owner, it is crucial to:

• Understand how fast you can realistically expect to sell your business. Selling to family or staff is quicker, but may not get you what the business is worth; selling on the open market is potentially more lucrative but demands longer sale preparation (often 2 – 3 years)
• Scale down your involvement in the business, and put in place succession planning to replace you (this will demonstrate to buyers that the business can function without you)
• Document all business procedures, both to facilitate handover to the management team and to satisfy buyers that procedures are in place to enable the business to continue to run profitably
• Increase the value of the business, both by upgrading operating systems, IT, and assets (e.g. machinery) to the latest industry standards and by restricting expenditure to essential items to paint a stronger profit picture
• Navigate the different types of exits and their pros and cons, including Management Buy-Out (MBO), family succession, Mergers and Acquisitions (M&A), liquidation, Employee Ownership Trust (EOT), franchising, Initial Public Offering (IPO), and selling the business!           

Navigating Mergers and Acquisitions (M&A)

M&A combines companies through various types of financial transactions, which can include buying or selling the businesses concerned.

The benefits of M&A can be numerous – including a larger market share, better access to industry talent, exposure to new markets, lower costs and increased profits, and greater tax efficiency.

But M&A is also necessarily a complex, technical, and high-stakes stage of business growth, with many potential pitfalls.

Buying

• Financial due diligence – A thorough investigation into a business’s accounts enables you to understand if that business is valued and priced fairly and credibly. Can it deliver what it claims it can operationally, with all necessary processes, systems, infrastructure, and workforce in place?
• Market and industry analysis - If you’re acquiring a business to take you into new markets, do you know and understand the market you’re buying into?
• Your integration plans. Systems, teams, branding, technology, employee experience, and retention should be aligned. 

Selling

• Getting the best price for your business sale, through accurate valuation, negotiation, and balancing the interests of both parties
• Preparation and readiness for sale, from financial records to legal or regulatory issues resolution, and from finding the right buyer to maximising profits and presenting the business impressively.
• Addressing employee concerns around job security, changes to benefits packages, and future opportunities, to maintain morale, retention, and productivity.

In both cases – buying and selling – post-transaction planning is critical to achieve a seamless M&A experience.

Expanding your business through additional funding

With business maturity often comes the need to seek out additional funding from sources of external finance, as competition forces pricing down, revenue weakens, and available cash becomes squeezed.

Sourcing this additional funding is a complex and exacting task, with options potentially including grants, loans, share issues or reissues, and, depending on circumstances, cash from angel investors or venture capitalist (VC) funds.

But the funding often also comes with obligations, consequences, and knock-on effects, including:

• Dilution of ownership - new funds may mean new shares are issued, and this can shift the current shareholder’s control.
• Financial obligations, such as changing interest rates and dividend payments to equity investors, which must be managed at the same time as ensuring the business has sufficient cash flow.
• Investor expectations: investors will have their own key performance indicators (KPIs) that the business must satisfy if it is to retain their confidence.
• Due diligence and compliance - Extensive due diligence processes, legal and regulatory requirements, and the provision of accurate financial information are indispensable in securing additional funding and sources of external finance.

Dealing with increased competition 

If your business has achieved maturity, you can be sure that it is firmly on your competitors’ radar, as they move in and attempt to take market share from you, often by offering similar products and services at lower prices or combined in more cost-effective packages and bundles.

This, in turn, can create pressure on you to lower your prices, which weakens margins, profits, and profitability, reduces cash flow, and can diminish the perception of your products and services quality in the marketplace.

Confront and address the challenges, including:

• Maintaining innovation – How do you optimise cash flow, consolidate spend, and obtain additional funding to continue the innovation that will restore your competitive advantage?
• Customer acquisition and retention – How do you cost-effectively increase customer nurturing and marketing to strengthen brand trust and loyalty, and acquire and retain customers in the face of stiff competition?
• Overcoming barriers to entry – Competition can make entry into new and potentially profitable markets more difficult, so where do you find the resources to capture customer attention and differentiate your offering in a crowded environment?

Restructuring and Reorganisation

Businesses change shape and direction over time, and at the maturity stage of business growth, it’s often the case that the strategic goals – and the resources in place to achieve them – need a refresh.

Restructuring and reorganisation can be effective ways of realigning strategy to goals that are SMART (Strategic, Measurable, Achievable, Realistic, and Time-Bound), and of maximising efficiencies anew across the business.

Essential processes here include revisiting technology and systems used, to ensure optimal integration and minimal need for manual intervention or duplication of effort, as well as closely examining resource allocation to ensure the right skills are in the right place.

Confront and address the challenges, including:

• Employee morale - Restructures and reorganisations are often perceived as threats to stability or job security and generate resistance. How do you get (and keep) those affected by change onside?
• Communication issues – Do you have the right mix of channels, simplicity, and detail to ensure messages land well with diverse audiences across your business?
• Leadership learning - Strategic direction is driven down through your business by those at the top, so realigning them with new strategies is an absolute priority.
• Financial constraints, as the costs associated with the restructure or reorganisation begin to bite. How will you forecast, model, and mitigate their impacts, and balance these with the returns they will deliver?
• Supply chain disruption, as the combination of new people in new roles, upgraded systems and processes, and more efficient working practices potentially impacts some supplier relationships.

Targetting overseas markets

A mature business with products and services that are proven in its own geography may well see similar opportunities beyond its borders – and if you’re ready for the challenges, as well as the opportunities, that this can present, you’ve got a good chance of making it work.

But those challenges are key. Selling into an overseas market isn’t just about delivering a product or service into a different country, it’s about localising that offering so it’s positioned effectively against local competition, conforms to local expectations around use and support, is sensitive to local cultural norms, and complies fully with local laws, regulations, and restrictions.

Overcome the many potential hurdles in targeting overseas markets, such as:

• Logistics challenges: supply chains, distribution networks, transport, customs requirements, and paperwork, duties, and tariffs
• Currency risks - Fluctuations in exchange rates can impact your business’s performance and profitability, so limiting your exposure through Finance and financial management techniques is critical.
• Language and communication can be both practical and legal barriers to overseas trade, with some countries’ laws requiring complete translation of products and services, whilst in others (e.g., Ireland, the Netherlands) this is unnecessary.
• Barriers to market entry – Is the market open or are there import and export restrictions? What do trade regulations look like, could a punitive tax regime towards products or services from outside the country decimate your margins, and do you need to factor in the recruitment and remuneration of a person ‘on the ground’?