Business Exit: What you need to do before selling
Selling your business is not a regular activity. And when it does happen, you want your exit to be as smooth, efficient and profitable as possible.
Before you begin the process of reviewing options to sell, preparing for sale, and the sale itself, there are important steps you need to take as part of your exit strategy.
Begin planning your exit strategy as early as possible
Exiting a business is not a quickfire action - especially not profitable exits. It is crucial that you begin planning for your exit as early as possible. Ideally you should begin your business with the end in mind and start developing the exit strategy from the beginning. If this hasn’t been the case, however, your exit plan should start two to three years before sale of the business.
It takes time to deliver your exit plan and that’s why you need to begin early. You need to work into your strategy — both personal and financial objectives with tax and estate planning being essential.
In order to be able to effectively complete your objectives, you need to have a wealth management plan built into your exit strategy. This will help you deliver on your exit goals for both yourself and those relying on the sale (i.e shareholders).
When building the exit strategy, another consideration you will have to take is how involved you want to be in the business after the sale. Do you want to be out of it completely? Or will there be a phase of consultancy or earn-out for a defined period of time? Or you could be a chairperson with a continued stake in the business.
The earlier you start planning for exit, the easier it will be to make measured decisions that work best for you and the business.
Know the Value of the business
Once you have developed the road map for your exit plan, you must then place a value on the business. A good business broker will always provide an indication of the range of valuation they would expect to achieve in the market from their experience. A second opinion can also be provided by an external Finance Director. Either way their expertise can help you define the true value of your business and what you’re aiming for through exit.
Options are what you need during an exit plan because they give you room to adapt to changing scenarios as your exit develops. Knowing the value of your business gives you options as it creates achievable and tangible targets for your company. Then you can look at the different options you have of getting to these targets.
Be clear about what you want your legacy to be
Most business owners have a personal attachment to their business — whether it’s because of the years of hard work they’ve put in to build the business from the ground up or how it’s created a better life for them and their families. This is why it’s important to build into your exit strategy what you want your legacy at the company to be.
To avoid any late in the day stress and poor financial decisions it is crucial to lay out, at least to yourself, what you plan to do with the proceeds. Do you want to provide a bonus from some of the proceeds of the sale to some of the staff in your business? Or split some of your wealth with family and friends?
You could also give some of the proceeds to a future project or charity that aligns with what you believe in. Whatever you decide, it is always useful to have in the back of your mind the question, “how do I want to be remembered”’ to better understand the steps you intend to take for that desired legacy.
Make sure you implement a succession plan
The question of “what is the succession plan?” should be addressed during the creation of your exit strategy. You may have a natural replacement within your business; and therefore, the planning would be straightforward.
If you do not have an immediate candidate in mind, it is important to work time into your exit strategy to have a thorough process to find the correct successor or successors. This ties into what was previously said about legacy because it is important that the business is left in good hands because it will be remembered that you were in charge of appointing them.
Make sure all of these are done before moving to sell
When deciding to exit a business, it is easy to immediately jump straight to thinking about selling it. However, in order for you to maximise the value of your business and profits from the exit, you must follow the steps in this article.
For your exit to be as efficient and profitable as possible while creating the best legacy for you, you need to put the time and work into a focused exit strategy before selling.
This article was written by John Courtney, Founder and CEO of Boardroom Advisors, which provides part-time Executive Directors (Commercial/Operations/Managing Directors), Non-Executive Directors and paid Mentors to SMEs without either a recruitment fee or a long term contract.
