Planning Your Business Exit Strategically
Selling a business is a strategic decision and one that should be given plenty of thought and preparation. Taking the correct steps enable you to obtain the maximum value during the operation of your business through to the completion of its sale. Although not exhaustive some things to consider are:
Don’t decide to sell on an impulse
If you wake up one morning and decide that you’ve had enough and you’re going to "sell my business" as soon as you can, the probable result will be, a low selling price or a business that is unattractive and unable to sell.
Preparing your Business Exit Strategy is crucial to ensure you have everything in place to maximise the appeal to potential purchasers. All too often the impulsive seller becomes unstuck once serious enquirers start to ask relevant questions. A simple thing such as poorly prepared accounts starts alarm bells ringing with enquirers.
What is a reasonable selling price?
If you're thinking "how do I value my business", seeking professional help is crucial, it’s not enough to understand the Adjusted Net Profits and applying a multiple. Does your valuation take into consideration market trends, key value drivers or your timeline? Occasionally I meet with prospective clients who have been given a valuation that is unrealistically high or just as bad, very low!
Once a buyer begins their due diligence, they will analyse the high valuation to challenge the assumptions used and expect to see evidence to support it. A simple thing I say to sellers is “would you pay that amount for the business”? If the seller wouldn’t expect to pay that amount, why should anyone else?
Frighteningly, we are starting to hear about a practice of businesses being valued very low and unscrupulous agents / brokers stating their fees as: the selling price received over the valuation being their profit!!!!
Experienced & Respected Business Transfer Agents can assist with business valuations and can provide details of the current market.They will be transparent, walk you through the valuation and will have the goal to achieve the maximum realistic value for the owner.
As certified Value BuilderTM Advisers and part of Business-Partnership, we are experienced Business Transfer Agents and understand the 8 Key Drivers of Value these are:
Below I briefly review Financial Performance, I shall review all the areas in depth in later posts.
When a purchaser is considering buying a business, they will request copies of the last 3 years statutory accounts (remember they will expect to see professionally prepared ones). They will want to see steady profits on an upward trajectory, if the profits have improved for only the last year, they will discount this as an exception. Therefore, the earlier the exit planning strategy begins, the better.
Have you reviewed your operating costs? Reducing your operating costs have an immediate impact on the net profits. Start by analysing your expenses for items that are essential vs nice to have, sometimes you may be inadvertently reducing your profitability.
When was the last time you reviewed prices with your suppliers, if your goods are a commodity for example paper, have you analysed how the price of pulp has tracked. If the price of pulp has dropped, have you challenged your supplier for a price reduction?
When did you last revisit your pricing? A simple example is below: If you were to raise you prices by 1% and all other costs did not change, the increase on the bottom line could be significantly higher than 1%. e.g.
Sales Revenue = £1,000,000
Cost of Sales = (£600,000)
Admin Costs = (£300,000)
Net Profit = £100,000
With 1% price increase:
Sales Revenue = £1,010,000
Cost of Sales = (£600,000)
Admin Costs = (£300,000)
Net Profit = £110,000
Therefore an increase in Net Profit of 10%
As Quantum Leap Advisers, we can help you identify and implement strategies in which to improve the financial performance without large investments of time and money.
How much money do you need for the future?
I like the Steven Covey principle of Starting with the end in mind. If you are trying to reach a financial goal, have you sought advice from financial specialists. Starting with accountants, among other things they can advise you on the most efficient tax planning when considering the structure of a sale.
A financial planner will be able to advise on how to manage / invest your earnings / dividends from the business and financial windfall from the sale of your business.
Preparing to Sell
Honesty is always the best policy and that starts at initial discussions with your adviser. There is nothing worse than being given bad information as this impacts their and ultimately your credibility when they are speaking with enquirers.
Your adviser is an extension of you and your business and they need to know the things that due diligence will uncover. This then enables them and their network to advise you on the best path forward to enable a successful sale. Sometimes it is possible to implement a remedy if there is time, other times it is best to disclose up front to a purchaser.
Conducting an assessment at the beginning with your adviser will enable you to determine the best plan of action to prepare you for selling. What is the best marketing strategy? Who will be the target audience? When is the appropriate time to go to Market? Unfortunately there are some agents out there who do not have their clients interest at heart, it's important you do your due diligence too.
As you can see, thinking strategically is crucial and taking the correct steps enable you to obtain the maximum value during the operation of your business through to the completion of it’s sale.
At Moves Matter Ltd, we have the knowledge and network of professionals and can assist you all the way through your Exit Panning Strategy from conception to completion.
Contact us today to begin your Strategic Exit Planning Strategy