For Business

Experts in exiting

While you might not be ready to sell today, it is never too early to put plans in place.

You have spent years building your business, it is part of your identity, all is going well, and you have no idea how you would fill your time without it…

…so, why would you consider planning a sales strategy now?

Here’s some food for thought on the importance of having an exit plan in place.

In my experience, business-owners ask me, after a lot of soul-searching, “should I sell my business?” Really, the question they should be asking is, “when should I sell my business?”

-Rich Grover, Hazlewoods Director

The right time to sell is complex. It involves emotions as well as financial concerns and does not happen overnight, but without an exit strategy your options are limited.

Lack of preparation can result in aborted sales attempts, a poor culture fit with the buyer, or you might feel compelled, through a change in circumstances, to make a quick sale which does not realise maximum value.

While you might not be ready to sell today, it is never too early to put exit plans in place. By spending time making your business ‘sale ready’ now, you will be in a good position to go when the time is right, as well as strengthening your business in the intervening period.

Remember, buyers often have extensive deal experience. Most sellers do not. Working with the right adviser early will put you in charge of the sale process, create competitive tension and secure you the best deal.

So, assuming you have appointed a professional adviser to help you make your business appealing to buyers, here are some key moments when the time might be right to sell:

You want to move on to pastures new and retire or embark on a new adventure or business venture.
The business has outgrown you and requires management with a different skillset to take it to the next level.
The market is changing for the better or worse – by keeping your eye on trends in your sector you will never be caught out and can maximise opportunities.
A potentially lucrative opportunity presents itself.

Some key steps to consider…

Get your books in order

Accurate accounting information provides reassurance of current and future performance.

Create a business plan

Increase your credibility by giving buyers comfort that you know where your business is going and how it will get there.

Update systems and controls

Implement policies and procedures to ensure compliance with laws and regulations and reassure buyers that it can function effectively post-sale.

Bolster customer contracts

Ensure customer contracts are up to date and enforceable. Strengthen all contracts and confirm new revenue streams.

Diversify

Reduce reliance on a few customers. Losing them would pose a risk to revenue and cash flow. Aim to dilute customer concentration and diversify your client base.

Improve profitability

Cut unnecessary costs to boost profitability. If your company is valued on the basis of a multiple of earnings, increased profit will give a higher valuation.

Build a strong management team

Make your staff a key asset and yourself dispensable, showing that you are not vital to the company’s success.

Protect your intellectual property

Protect patents, copyrights, trademarks and brand names to sell products and services at a premium, and deter competitors from entering the market.

Get expert help

Our Corporate Finance team have extensive market knowledge, expertise in finding buyers and the negotiation skills to get you the best price, and will help you every step of the way.

Obtain an independent valuation

This will give you a good idea of what price you are likely to achieve.

Create a sales document

We will help you to produce a detailed Information Memorandum to highlight your company’s strengths and entice prospective buyers. You cannot put a ‘for sale’ board outside, feature it on a property website and wait for a buyer. It is a tailored and involved process that will reap rewards if carried out proficiently.

Be proactive

Ensure customer contracts are up to date and enforceable. Strengthen all contracts and confirm new revenue streams. A one-page, teaser document will be sent to chosen targets to whet their appetite, along with a non-disclosure agreement for signature so you can share confidential company information.

Once you have a flurry of interested candidates, it is time for us to negotiate and get you the best deal.

Every buyer wants a bargain, and sellers want to achieve maximum value, so finding common ground which satisfies both parties is important.

An independent business valuation will help you accomplish that. While your historical profitability should be easy to establish, it will need to be adjusted to determine a maintainable which can be sustained going forwards.

Subjective elements will also come into play, including:

Your company’s reputation
The strength of your management team
Good customer and supplier relationships

Value will also be affected by:

The robustness of forecast growth
Recent deals in the sector
Market and economic conditions

Usually, an earnings-based valuation approach, which assumes that the business value lies in its ability to generate returns in the future, is undertaken.

By removing non-recurring costs, the profitability of the business as a going concern can be calculated. Simplistically, an earnings before interest, tax, depreciation and amortisation (EBITDA) figure would be calculated and then multiplied to give a company valuation.

Multiples reflect the market’s view on risk and future growth prospects; typically varying from 3x for a small business with low barriers to entry to in excess of 10x for fast growing business with intellectual property. Multiples are maximised where a buyer sees strong strategic fit.

As you embark on the final stage of the exit journey, we can help you cross the finish line with confidence. Our team will:

Negotiate to get the best deal on your behalf

This is not just a question of how much money you will receive (although obviously we always seek to maximise total consideration), but also how the payment will be structured, over what period of time and whether payments will be contingent upon future business performance.

Complete due diligence

Any purchaser will want to scrutinise your business before finalising the transaction. We will manage the process, liaising between parties, to make it as pain-free as possible.

Focus on tax

By structuring the deal in a tax-efficient manner you can minimise tax and maximise proceeds.

Total deal management

We will make a concerted effort, working with all stakeholders, to push the deal over the line, allowing you to focus on your future.

You may want to reinvest in another business, take a well-earned break, or retire. It is therefore worth considering wealth management – Hazlewoods Financial Planning can help you use the sale proceeds in the most efficient way.