Looking to Make an Exit?

Any person who has ever built a business from the ground up, understands the sacrifices it takes to make it successful. The early years often require a 24/7 commitment, when family holidays are few and far between and the sessions burning the midnight oil are frequent. Even if the business’ profits skyrockets, it brings a new set of pressures and dilemmas such as when to scale, and how to manage growth sustainably. So, in the midst of all these demands, it’s not surprising that many business owners, especially those of family businesses, frequently overlook the need to have a strategy for the end game – otherwise known as an exit plan.
Many of us will be familiar with the idea of succession planning, but fewer understand exit planning. The two terms are often used interchangeably, but each has fundamentally different meanings. Succession planning is now expected of modern leaders to ensure the transfer of power within a business is a smooth and effective undertaking. Exit planning is a process executed over a sustained period to ensure the owner can leave the business while also realising its true value. 

Start with an exit plan

Ideally, owners should start thinking about their exit plans as soon as they enter the business. However, unless the owner is a private equity investor, typically advisors at Moore Stephens are not approached until two to three years before the optimal sale date. There is a myriad of reasons why owners decide to sell including health challenges, to marital happiness or retirement. Sometimes, it’s because their children want to pursue other avenues and don’t want to take over the helm or, the business has expanded beyond the owner’s capability or tolerance for risk. Whatever the reason, exiting a business is a step-by-step process, and it takes a few years for a competent and professional advisory team to effectively to plan and coordinate tax, legal agreements and structure deals to secure a satisfactory sale.

Be sale-ready

To be sale-ready a business needs to be well-automated, meaning it does not require the owner to be working in the day-to-day operations to be profitable. It’s crucial that key clients are not reliant on their relationship with the owner or a specific employee, and that all intellectual property, such as distribution agreements are documented in detail. The legal structures also need to be prepped to ensure the sale is straightforward. A single structure rather than a trust is always a more attractive proposition to a potential buyer.   

Mental readiness is just as important. Growing a business requires an enormous personal investment, so it’s understandable deciding to sell is a difficult one, especially if the business is the culmination of a life’s work. It’s why it’s important the seller has trust in their professional advisor so when the time comes to sign on the dotted line, they can take on board their guidance rather than be ruled by emotion.
Involve a professional advisor

Often clients will engage Moore Stephens because they don’t want to put their business on the open market, which can jeopardise both existing clients and employees. A public sale is usually the realm of a business broker which can be a better fit for small retail operators or manufacturing distributors. A broker will carry out a simple analysis before putting the business up for sale, usually on a website. A professional advisor will examine in-depth the value drivers which are then thoroughly articulated in sale documents. They will also identify and approach potential buyers to deliver the best price.

What buyers want

Often owners will have identified a buyer before beginning the sale process, but it’s rare that the business will be sold to that person. Ultimately, a smart buyer is looking for a business that they understand. If they have an existing business, any new acquisition must have synergy with their interests and can sell their own product to the target client base or, can cut costs because there’s an overlap in management. They may also be able to increase volume because they get a better deal from their suppliers. 

Businesses that have a loyal or large customer base, brand awareness and a dominant market position will always prove alluring to buyers. However, the internal mechanisms can also be positioned as strong selling points too such as the strength of the management team, the health of the organisational culture as well as the efficiency of the business’ systems, processes and records. 

Consider the legacy

At the start of the exit process, it’s important business owners are upfront about their personal objectives for sale. While a high price might be the end goal, it may come at the cost of the employee’s future job security or even the business’ ongoing viability. Often a fair price will ensure there’s a good custodian to take care of the business and the owner can walk away knowing the product of their dedication will be sustained along with the employees who helped to build it.