A successful exit is the end game for many founders. I spoke to members of The Supper Club who have successfully exited for insight into how they got the best outcome, and what they would do differently in hindsight.
(1) Personal motivation
Before you think about how to exit, you need to be clear about why. There are lots of reasons to sell your business. Some no longer feel they’re the best person to run it or take it to the next level. Others want to sell to get the best price. And some simply get offers they can’t refuse.
(2) How much is enough?
The most important thing to calculate is the minimum you can sell the business for after all liabilities are paid out of the proceeds and whether that number is life-changing or merely life-enhancing. It will be easier to manage the stress of selling if you understand your sale threshold and know when to walk away. A good wealth manager can help you find that magic number.
(3) Get your house in order
Focus on running a good business. Always consider what might be impacting its capital value and salability – even if you’re not looking to sell imminently. Have a clear, long-term plan for the business so your decisions help you reach that goal rather than constantly trying new things. Focus on the associated problems you need to address now, rather than storing them up for the future. You will be in a stronger position to negotiate a higher multiple if you have the right senior team, a good track record with the numbers, clean data, contracts that are all up to date, and a strong, realistic forecast.
(4) Get a good FD or CFO
Some members attribute their successful exits to a finance director or CFO with experience of selling a business. They advise bringing them in early to professionalise financial reporting to ensure the figures are presented in the right way. During the sale process, they can help you avoid under-trading and ensure your operational accounts balance with forecast numbers.
(5) Maximise capital value
The main drivers of the value of a business are trading history, company size, IP, asset base, management team, quality of your sales and customer base, sector, niche, and market leadership. Buyers typically calculate their valuation by applying a multiple to pre-tax earnings. They will be more convinced by a three-year profit history than a three-year forecast. Demonstrating a solid pipeline of sales, tying customers into long-term contracts, and consistently hitting monthly targets will help as you’re courting buyers.
(6) Succession planning
To instill confidence in potential buyers, your executive team must have the credibility, skills, and day to day responsibility for running the business. Buyers and their advisers will want to be reassured that they have been doing it long enough that they will not miss a beat with a transfer of ownership. Try to move into a chairman role at least 12 months before you sell. If it’s later than that, buyers may feel it’s still dependent on you. Look for a trusted and reliable MD or CEO who can not only run the business but impress investors and potential acquirers. A Non-Executive Director (NED) with a strong reputation can add credibility to your business, reassure potential buyers, and advise on the right kind of exit.
(7) Get good advisers
As one member observed, ‘you will be judged by the company you keep; get the best advisers you can afford to deal with the buyer’s heavyweights’. Corporate finance advisers will help you understand what’s valuable to a buyer, what’s not, who’s buying, and how to achieve the highest valuation and multiple. A lawyer will help you address any due diligence issues that might weaken your negotiating position. A tax adviser can help you structure the sale to maximise wealth by advising on Entrepreneur’s Relief and Capital Gains Tax. Members who have seen the best result recommend talking to advisers as early as possible in the process.
There’s always an element of luck with the timing of an exit, but if you don’t prepare your business for sale you’re less likely to achieve the maximum value when an opportunity comes along.
