Kevin Uphill, chairman of Avondale, will be speaking at the IoD’s Strategic Planning for Company Exit conference next week. An exit plan, writes Uphill, should be part of any successful entrepreneur’s strategy
Business owners work passionately and relentlessly at building their organisations. At some stage an exit will be a consideration – whether that be for retirement, to move onto pastures new or to hand over the company to a larger organisation with the capacity to further grow the business. Here are my five top tips to help you build this strategy to sell your business at maximum value.
1. Get your timing right
Start by preparing early, advanced ground work can significantly increase ultimate exit value. Put a stake in the ground as to when you want to sell – timing your exit carefully is critical. Ideally sell before your business peaks, before the next wave of investment, with a great track record, when the market has prospects for your sector and you have a team able to drive growth beyond you.
Work out whether it’s the right time for you. Analyse the forecast net sales proceeds if you sell versus the net income you would receive if you retained the business. Look at non-financial personal factors such as free time, pursuit of new opportunities and interests.
2. Ensure your business is worth its utmost
Prior to sale, owners should be looking at strategic ways to increase the value, not only through the level of profits, but also through addressing elements that will directly impact the value. Owners should be looking to spend more time working “on” the business rather than “in” the business, increasing profits and making it more attractive to buyers. There are a few fundamental factors that can influence value; including:
- Minimising the buyers/lenders perception of risk
- Creating barriers to entry
- Ensuring steady, recurring income that can easily and accurately be forecast where possible
- Ensuring solid systems and safeguards are in place
- Develop strategic long-term growth plans
- Consider geographical and sector diversification
3. Select an advisory team with a proven track record
Undertaking a business sale is one of the most important financial decisions you will ever make. An advisory team take can make a real difference in maximising value and minimising distraction. There are many legal, financial and regulatory issues to address. In addition, there is the matter of finding the most profitable buyer for your business and then negotiating and structuring the most advantageous deal, ideally in a competitive environment.
4. Leverage the sales process
There are many ways in which you can strategically increase your business value. Correctly used, the sales process itself can significantly increase your deal value. A professional advisor can guide you through the process and manage it enabling you to concentrate on your business.
To help leverage the sales process you should aim to:
- Create a competitive environment. Careful research to identify and approach potential buyers that would benefit from acquiring your business will lead to multiple parties having a vested interest in buying. This in turn creates a competitive market driving your deal value.
- Position your business in the best light. This could include ensure that potential synergies, long term strategies and forecasts are carefully detailed.
- Negotiate and structure the right deal. An advisor can coach you on your role in negotiations and will lead these to ensure the right deal is structured. A good advisor will be able to leverage buyer’s motivation to ensure your objectives are achieved.
- Manage and orchestrate all parties. Again, an advisor can manage this on your behalf ensuring all parties are fully informed, deadlines are met and that the transaction stays firmly on track until completion.
5. Be prepared not to sell
This might sound strange but few vendors operate from a position of strength with belief in their company, product, service and, most importantly, its future strategy and worth.
Whilst you are trying to drive your sale price up, the purchaser will be battling to force it down. They will use all sorts of tactics to grind down the deal value. Your gain is their loss and vice versa. You need to be fully armed to command a premium price and show no need to manoeuvre from your standpoint to suit their need to negotiate.
Understanding and, importantly, believing in your true worth both today and in the future is crucial to winning this battle. You need to have strategic, contingency plans in place for the next few years. While putting together a strategic plan for the future may seem a strange thing to do when you are about to sell, it can dramatically increase your sale value. Being clear on your alternative strategy to grow the business creates a powerful walk away position to leverage your negotiations and to optimise your sale price.
It will enable you to counter any unacceptable offers and it will make it easier to justify that, while you are interested in the approach, the price has to be right. It needs to be a strategic buy. If the price is not right, the fact that your three-year plan may substantially increase your value puts you in a far stronger position.
There are many aspects involved in a successful business transaction. Some of which will start prior to the sales process itself. It is important that you start considering these months before you decide to sell. Understanding the preparation and process will help ensure a successful transaction at maximum value and minimal stress.
IoD Strategic Planning for Company Exit conference
14 May, 116 Pall Mall, London
This one day conference will detail some of the basic exit strategies that every business owner should consider from day one. With advice from the experts, Q&A sessions and real life examples, you will be able to plan a successful exit.
IoD Business Sales, Mergers and Acquisitions
In association with Avondale, the IoD now provides a new member benefit, IoD Business Sales, Mergers and Acquisitions. To find out more, please call +44(0) 1737 234892, click here to email or visit www.iod.com/buyandsell