In reality, an effective succession begins long before an actual exit. As a Business Owner you need to give yourself time to manage the process in a calm and calculated manner, as this in all likelihood will be the single largest transaction you will ever be involved in. I tell every Business Owner I meet that in order to achieve a premium value for their hard work, they need to be committed and serious about an eventual exit strategy. Whether you are thinking about selling in six months, or five years, then you must:
1. Be able to demonstrate long term relationships with customers and clients. Contracts with guaranteed revenue are desirable, but if not practical in your industry you need to show that the client has been happy with the products/services supplied for a prolonged period of time. This will give comfort to an incoming party that the relationship is solid and likely to continue for the foreseeable future.
2. Have developed a solid management team which alleviates concerns that the business is dependent on the departing Owner.
If the departing Vendors still generate revenue, meet with clients or are the face of the company, then a Purchaser will rightly be concerned about the negative impact of their exit post sale. Therefore having a fully managed operation (meaning day to day operational aspects, financials, client interaction and sales are not directly linked to the Vendors) is crucial.
3. Review your strategy and operational plans, focusing on creating a more attractive asset for future sale. Often Vendors are so busy with the day to day running of the company, increasing sales and winning new work, that they pay little attention to how the company’s model will be perceived by an outside party. Sometimes streamlining or consolidation can actually increase a company’s value, particularly if the business is perceived a niche player.
4. Get your finances in order. Any potential buyer will scrutinise the financial results over the past few years in order to understand the risks and rewards associated with this potential investment. If there are discrepancies or anomalies in your accounts, then a Buyer will discover these in Due Diligence and the goodwill built up between both parties will quickly evaporate; either the Buyer will renegotiate the price, or in the worst case scenario, walk away altogether, potentially with devastating consequences.
5. Create and organise regular management reports to help Buyers understand the key metrics and performance indicators used to manage the business. Demonstrating how the company is run from top to bottom, with proven efficient policies and procedures, will give comfort as to the calibre of your company as an acquisition and justify any premium price.
6. Develop a message around quality of earnings and performance and anticipate the questions and concerns of a Buyer. Knowing what information a Buyer is going to request during Due Diligence will allow you to prepare the documentation thoroughly and methodically in good time, removing a significant proportion of the stress involved in a sale.
7. Start considering who the ideal Buyer will be and their subjective value. Understanding a Buyer’s view regarding valuation drivers can position your business to highlight these points and accentuate the positive aspects further.
8. Realistically understand the strengths and weaknesses of your business. The better understanding you have, the better prepared you are to talk to a potential Buyer. This understanding can be used to shore up relevant weaknesses and highlight key drivers and investment considerations.
9. Formulate and implement a comprehensive sell-side Due Diligence process that will prepare you for the Buyer’s scepticism, rigorous analysis and negotiations.
10. Identity, quantify and amplify upside sale value opportunities such as property and other surplus assets.
Regardless of a particular investment or economic climate, early and thorough planning will optimise value. You need time to invest in developing a strategy, building your team and managing the process.
To commence the process and take the first step in a journey that will take several months and could take several years of preparation,
contact me to discuss further.