Finding the perfect exit strategy
Article Date: Dec 14 2006You’ve grown your business to maturity over the past few years and are now thinking of selling up, but how best to do it? Lesley Stalker, tax partner at professional services firm Robert James Partnership, outlines the key considerations.
Recent high-profile acquisitions such as communications firm Azzurri’s purchase of Sirocom, LexisNexis’s acquisition of Visualfiles and, of course, the recent sale of YouTube to Google have sparked renewed interest in selling businesses and exit strategy planning.
For many entrepreneurs, particularly in the new media and technology sectors, an eventual sale is the single biggest reason for creating the company in the first place. However, without appropriate planning, business owners could pay up to 40 per cent more tax than the allocated ten per cent for capital sales.
In addition to this, a lack of awareness of the value of the business and failure to master the basics of selling a company may lead to a less than successful transaction. New media and technology businesses need to be particularly aware of this from the outset to avoid losing a sizeable chunk of future proceeds from the sale.
Many business owners see a lifetime of hard work ruined by failing to plan ahead for their exit. Ideally exits should be planned as soon as possible, or in cases where the intention is to sell the business after a certain period of time (e.g. two years after its creation), the exit should be factored in to the start-up business plan.
Exit options
There are a number of ways of exiting or disposing of a business. Business owners should consider the best option for them in line with their personal objectives. The different options available are:
• trade sale
• management buyout
• family succession
• management buy-in
• stock market flotation
• merger
• liquidation.
Exit through trade sale
A trade sale occurs when you sell the business (or parts of the business) to another outside party. This is deemed as the best possible way to get maximum value from your business.
In order to make a successful transaction you should identify possible buyers and work to develop your business for a sale that they will want. Selling your business will be easier if you can:
• show year-on-year increasing profitability
• create a high-quality product or service
• develop an innovative product or piece of intellectual property
• build a strong customer base
• recruit a high-quality team
· maintain premises and assets in good condition.
Know your reason for selling
Part of preparing your business for sale is getting ready to deal with buyers and their questions. One question you are likely to be asked by prospective buyers is: ‘Why are you selling?’
For new media and technology industries the objectives for setting up a business (and ultimately selling it) might include generating capital growth and making money by selling the business, or creating an invention or piece of intellectual property, developing it and selling it on quickly. By detailing the business objectives at start-up, when it’s time for the business to be sold the reasons for doing so will be apparent.
For other businesses the reason may not be so succinct. It may be that original objectives such as wanting to pass something on to future generations are no longer desirable. Whatever your reasoning, think carefully and prepare your answers – potential buyers can easily spot if you are selling out of desperation!
