Ideally an exit strategy should be developed before going into business as the choice of how to leave can influence business development decisions from the start.
But we do not live in an ideal world.
Wake Smith corporate director John Baddeley, discusses ahead of the company’s exit planning seminar with Shorts Accountants and HSBC on November 30 at the AMP.
John Baddeley said: “A business exit strategy is a strategic plan to sell ownership in a company to third parties including investors, other employees in a Management Buy Out (MBO) or to competition.
“If you can build the right management team, find the right partners and think realistically about your ongoing involvement after exit, you are preparing correctly.
“However, be warned, don’t build a business purely for exit or acquisition.
“The key is making your business attractive to an acquirer – most are looking for a well-run business that has a clear vision and is sustainable in the long-term ideally with some growth.
The most common types of exit strategies include strategic sales and initial public offerings (IPO) and management buyouts (MBO).
John added: “When deciding on an exit strategy look at how much control or involvement, if any, you want to retain in the business; do you want to see the company run in the same way it has been, and are you open to changes.
“A strategic sale usually means the founders will be relieved of their ownership responsibilities, but will also give up control. However, a strategic sale often results in the greatest amount of return in the shortest time frame.
“Market conditions can also affect the appeal of exit strategies. An IPO may not be the best exit strategy during a recession whereas an MBO may not attract employees to invest when interest rates are high.
“The best type of exit strategy also depends on business type and size. A partner in a doctors practice might benefit by selling to one of the other existing partners, while a sole traders’ ideal exit strategy might simply be to make as much money as possible, then close down the business.
“If a company has multiple founders, or if there are a substantial number of shareholders as well, those competing interests must be factored into the choice of exit strategy.”
According to research from the Office for National Statistics, the value of mergers and acquisitions of UK companies in 2016 was over £200 billion.
So how do you realise the full value of all your hard work?
John said: “Keep your options open given the amount of investment capital available. Investors from the US and Asia look to tap into the proven technical capabilities of UK companies and the strong merger and acquisition activity at the entrepreneurial end of the market, means there are choices.
“Whether you choose a trade sale, a public listing or venture capital deal, or a private equity investor, there are critical issues to consider.
- Have you had a business valuation?
- Is your business attractive to potential buyers?
- Can your business stand alone or does it need to be part of something else?
- Are your records and contracts up to date?
- When is the best time to sell?
- Is your management team up to scratch - as an investment in people is critical for a potential buyer or investor?
- Are you ready to work with an acquiring buyer as you’ve previously always been in charge?
“Good advisors will focus on building relationships with the other party, coach you through negotiations, offer advice for the business and your own personal interests, and have difficult conversations with potential buyers. All this can mean the difference between sealing a good sale and finalising a great sale.”
Quick tips for exit planning
- Focus on building a well-run business with potential for growth and buyers will be interested
- Find the very best investors – ambitious for your business and be able to add value
- Be sold, don’t be bought – prepare for sale, but don’t run your business solely for an exit
- Involve your top management team – it can be a long process and one you shouldn’t face alone
For further information regarding the Exit Planning Seminar on November 30 from 8-10am at the Advanced Manufacturing Park click here
