When looking to sell a business, preparation is key and needs thorough planning before the inevitable departure from the company. Though a business sale can take months to set up and negotiate, the actual process of preparing to successfully exit your company may take much longer. So, if you’re looking to sell your business as smoothly as possible and avoid the pitfalls or are looking to maximise your return, it’s never too early to get your business into a robust condition.
Why is planning your exit strategy so crucial?
Once you’ve announced your plan to exit the business, all your strategic decisions about running your company will be designed to meet that purpose. And a well-crafted exit strategy will both help optimise your trading profit and also increase your eventual selling price.
For those entrepreneurs who may have spent years building up their business, planning for an exit will make sure your business will continue to thrive after your departure from the company and thus bring a great deal of satisfaction. It will also hopefully pay you back for those considerable years of hard work and often underpay.
But never underestimate just how long it will take to get your business affairs in order and ready to introduce your business to the market. If you want to achieve your exit goals, it’s a process which must be planned long in advance, often 2-3 years ahead, and involves some steps that you must take at a relatively early stage.
How fast are you looking to sell your business?
Time will always be against you if you’re in a hurry to sell on the open market. And if you’re planning to sell your company to family or a staff member, you may not receive the full cash price or have to defer some of the gain, risking some of your hard earned value.
If so, you may need to plan for a continuing strategic involvement in the business to guarantee your investment return.
However, even though the open market gives you the option of a clean break, it’s also the choice which demands the highest standard of sale preparation. Buyers will typically want the owners to commit to a handover period of one to two years, though it is usually possible to shorten this period considerably after the actual sale.
Scale down your involvement with the company
There comes a time when the business owner must reduce their appearance and involvement with company operations to see how the business would cope without you at the helm.
A business that can’t survive without you in control has little inherent value. You should decide to remove yourself from running the company and empower or recruit a capable management team to do the job in your place.
Try to scale down your contact with customers and leave important decisions to others. This will help to develop a business profile where you’re no longer a key component and prove to potential buyers that the company will still be running effectively.
Document all business procedures
You need to document all your business processes, step by step and handover the procedures to your next in command or management team. This will encourage prospective buyers by giving them a realistic picture of how your business can be profitably run on a day-to-day basis.
You should also include job descriptions, robust terms of trade, contracts, legal documents and board reports plus any other document templates for any repetitive tasks that are core components of your company’s success, you will make what you have to offer to potential buyers even more attractive.
These documents will also be required for due diligence and, if they are in good order beforehand, it will smooth the due diligence process.
Increase the value of the company
Reviewing and updating your operating systems and processes to reflect the current industry trends will also help to further impress prospective buyers. It’s wise to remember that this should also include reviewing the current condition of your company website, IT support facilities and sector specific technologies e.g. manufacturing machinery. Also reducing expenditure to essential only items will help increase profits and overall value.
Other important points to prepare for include:
- Finding the right buyer – Competitors usually do not give you the best value, and this is more likely to come from a strategic buyer (e.g. overseas or trying to get into your sector or geographic region).
- Scaling Up – If your business begins to grow in size, productivity and wealth, it’s only natural that the larger business will generally attract higher prices.
- It is usually easier to sell a business for a good price if the business is growing and will continue to grow for at least the next two to three years.
- What are you as an owner going to do next and how will you live off the proceeds. Have you sold your business for enough and have you properly considered the net proceeds after tax and probably entrepreneurs relief.
Even though an exit strategy clearly takes time to prepare, it will contribute to your overall profitability as soon as it is ready and in place. But more importantly, it will enable you to potentially gain the sale price you have worked so hard to achieve for all the years of work poured into the business.
If you need help devising the right strategy for your business exit, our team of EFM Experts will help you to plan early and enable you to maximise the value, avoid shock exits and detrimental effects on your brand, customers, shareholders and staff. Get in touch today or call 01582 516300.