Five years ago businesses weren’t planning for it, the government wouldn’t contemplate it, and no-one seriously predicted it. That ‘it’ is Brexit, a term that didn’t exist in 2012. Combined with Trump’s presidency, the once unlikely referendum result made 2016 very unpredictable. Its legacy is prolonged uncertainty.
Within the next five years, an estimated one third of SME owners plan to retire, sell or pass on their businesses. Yet most have not started considering their options. If any lessons can be learnt from Brexit, they are: plan ahead, have a flexible strategy and be prepared for every eventuality. Only those who anticipate each stage of the exit process can attract purchasers who will pay a sufficiently generous earnings multiple. In doing so, they are more certain to achieve a favourable outcome.
Most entrepreneurs sell their business after years of slog. Deciding to sell is very personal – the most significant transaction they will ever undertake. Yet our research shows that, like those who did not anticipate Brexit, around 70% of business owners have no succession planning or clear route outlined through the exit process. Failure to do so can sharply limit the options for a successful sale.
No sports captain leads a team onto the field without a clear strategy of how to tackle opposition. Just like a winning team, operating a successful business depends upon executing of a well-conceived plan that responds to events. The same applies in a successful exit: meticulous planning with a clearly defined strategy.
How can you maximise your opportunities to get the right exit? There’s no simple solution. But it can be done using thoughtful steps, targeted towards getting the best price on the right terms, at the right time:
- Think ahead. The sooner you start deciding when you want to sell, the more likely you are to achieve your ambition. Ideally, a few years’ forward planning works best.
- Investigate every type of potential purchaser and do your due diligence on the available options: what is being bought, by whom and why? Identify potential buyers by their strategic fit and their ability to purchase.
- Understand what potential buyers may attribute value to in your business, then build value that they will pay for.
- Identify potential issues that could frustrate the process or impact upon value. Resolve these before starting the sales process.
- Focus on business growth drivers while minimising activities that do not enhance value for potential buyers.
- Don’t limit your options. Selling to a direct competitor can be over reliant on prevailing market conditions. Be flexible about potential buyers to secure the most profitable exit.
- Do sell while your growth is accelerating. A flat revenue or profit forecast is unattractive so package the business attractively to increase buyer appetite. Leave something on the table.
- Carry out due diligence on your professional advisers. Feel confident that they have relevant professional experience and know how to run a competitive bidding process: maximising competitive tension, enhancing valuation and delivering optimal deal terms.
- Preparation shouldn’t be rushed. It has taken considerable time and effort to build your business. Do not leave your final reward on exit to chance.
There is much to weigh up before you sell: determining the right time and finding the right buyer. Seek advice about how to do this, focus your thoughts, determine your objectives and outline your strategy, allowing you time to keep running your business.
A step-by-step approach really does work: business sales are more enjoyable and more rewarding when planned ahead like a leisurely drive on a sunny afternoon – rather than a last-minute sprint to the line in rush-hour traffic.
Mark Hardwicke is the founder and managing partner of Invenio Corporate Finance, an independent boutique investment bank.
See also: Successful exit strategies
