Your business exit strategy in 9 steps
If you are looking to exit your business or have a future plan to do so, you need a strategy. When you sell up, you want your business to have as much inherent value as possible – so you get a good price, a great return on your investment and the best payout. In the following, our Business Services team provides your business exit strategy in 9 steps.
So, how do you take yourself ‘out of the business’ as the founder, add the best value and set up an effective and financially beneficial exit strategy?
Adding Value To Your Company
The more attractive the business looks in the market, the better the price you’ll achieve, or the better the yield you’ll see on selling your company shares.
To drive that value:
- Work on the business, not in it – so you’re no longer a fundamental part of the day-to-day operations, and can focus on the higher-level strategic elements. We can help you restructure the operations so that your business stands up to a potential buyer, when you are no longer in it.
- Invest in adding value – keep profits in the business, reduce your personal drawings and plough that money back into growth and investment.
- Improve your financial health – by taking control of your finances and building a strong balance sheet, positive cashflow and attractive profit forecasts. A buyer will want to see how your business has performed over the last two years.
- Have a business manual – that describes the processes and tasks in your business so a new owner can start strongly.
Talk to us about exiting your business
If you’re looking to sell up, you need a plan. Come and talk with one of our expert Business Advisors about creating a workable exit strategy, focusing on driving value and delivering a solid return on your investment.
Get in touch to build your exit strategy. Call MB+M on 03 5821 9177.
What is a business exit strategy?
An exit strategy is a plan for wrapping up your involvement in a business. For most people, that means readying the business for a change of owner. Executing a well thought-out exit strategy can increase your sale price, while ensuring the business continues to thrive after you’ve left. We can also call this succession planning. What does it involve?
Succession planning definition and goals
The aim is to leave your business in the best shape for a new owner. That means it should operate at peak profitability, the books should be spick and span, and processes well documented so a stranger can come in and run the place. Oh, and the business won’t need you anymore – no matter how important you once were.
It takes years to do all this. That’s why it’s never too soon to start on your succession plan, or exit strategy.
How to sell a business
Business advisors and brokers recommend these nine steps to help get a succession plan in place.
1. Pick a target buyer
There will be different priorities depending on who you’re selling to. If it’s family, take pains to make everything transparent and fair. You don’t want the transaction to cause tension or conflict between children. If you’re selling to staff, be prepared for staggered payments. They’ll probably start with a deposit and pay you the rest from business income. If you sell to the highest bidder, then get all your records in order as otherwise they won’t have any idea how you operate, or what sort of money you make.
2. Decide how fast you’ll want out
Some buyers, such as family or staff, won’t have the cash to buy you out straight away. You might have to keep an interest in the business and stay involved to protect your investment. If that’s the case, you’ll need to negotiate consulting fees. If you want a clean break, you’ll probably be better off selling on the open market.
3. Get your accounting sorted
Smart buyers will ask to see at least two years worth of clean and dependable financial records. If your bookkeeping isn’t all it could be, get it fixed now. And if there’s something you can do to improve profitability, do it as soon as possible. You want that upswing to show in your accounts as a sustainable trend rather than as a recent spike.
4. Make yourself redundant
No one’s going to buy your business if it can’t survive without you. If you have staff, give them the training and authority they need to succeed. Scale back your involvement. Be less available to customers and clients. Delegate big decisions. Go into work less often.
5. Ensure your business is a well-oiled machine
Ensure you have formal (and efficient) processes for getting work done. Who does what, when, and how? Make sure there are protocols to guide all this. Potential buyers will be impressed if some things in your business happen automatically.
6. Document how everything happens in your business
Write a “how to” manual for your business, so that a stranger could pick up the reins and run everything tomorrow. Record every process, including admin. Make a note of the steps you follow for each of these tasks. While you’re at it, write formal job descriptions for employees. And create templates for tasks that repetitive in your business.
7. Figure out how to drive up the valuation of your small business
What are the things that make your business great? Do you have an outstanding product? Loyal customers? Amazing intellectual property? Find the strengths in your business and grow them, so they become even more valuable. Similarly, figure out the biggest holdbacks and fix them. You’ll need someone from outside the business to provide this assessment. Get your accountant involved. If they don’t have the particular skills you need, they may recommend someone who does.
8. Get a guideline business valuation
You won’t know what you’ll get for your business until the day it’s sold, but you can get a rough estimate. Ask for a professional opinion. If you are looking for a business broker, then you could search for one online or in your vicinity. Howbeit, your accountant should be able to introduce you to someone. A guideline valuation will help satisfy your curiosity and set realistic expectations. If they predict a lower price than you’d hoped, you might delay your exit, and spend some time building value in the business.
9. Work on a sales pitch
Your business needs to excite prospective buyers, so come up with an elevator pitch that captures the essentials. Craft a story that explains why you got started, how you’ve grown, and what you’ve achieved. Paint a positive picture of the future, too, but keep it real. Incorporate stats and facts to support what you’re saying.
It’s never too soon to start business succession planning, even if retirement is years away.
Exiting your business is inevitable. It will happen whether or not you’re in control of it. So make a plan now and start getting your business ready for the next owner. It’ll help you command a better price and increase the chance that your business survives.
And remember that anything you do to benefit your future buyer will also benefit you. You’ll have a more efficient, profitable and easier to manage business.
If you’re looking to sell, you need a plan. Come and talk with one of our expert Business Advisors about creating a workable exit strategy, focusing on driving value and delivering a solid return on your investment.
It’s never too soon to build a business exit strategy. Call MB+M on 03 5821 9177.
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