As experts in maximising shareholder value, we were asked by Real Business, the leading UK title for high-growth businesses and entrepreneurial SMEs, for our opinion on planning a successful exit strategy. Part one of seven – When and Why you should consider exiting your business.
There are a wide variety of reasons why you may be contemplating an exit for your business. Exit considerations stem from a number of different motivations including:
- Retirement or health issues;
- Realising cash value to secure financial wellbeing;
- To accelerate the growth of the business;
- Unlocking cash for new investment opportunities; and/or
- Responding to one or more unsolicited approaches.
Each of these motivations requires different strategies to be put in place so forward planning is imperative. The decision to exit is a very personal one and there are no right or wrong strategies; but being prepared will benefit you in all instances.
Good preparation will not only broaden your options in the long-term but will also allow you to shape the business for your desired exit route and help identify and prepare an appropriate successor should you wish. The goal will always remain the same; you want to achieve the best possible price from a purchaser that offers the best fit with your business.
From the outset, it is vital that all shareholders are in agreement regarding the exit strategy. Any differences of opinion need to be ironed out early on to prevent problems arising when the plan is put in action.
Your long-term plans for the business also need to be clear from day one, especially if you are looking to find a partner to accelerate growth. They will want to know how long you intend to stay with the business so a considered and credible response is essential.
The optimal timing of an exit will depend on several planets aligning: your business’s trading position, the appetite among buyers and investors and the shareholders’ objectives.
If your business has delivered several years of healthy revenue and profit growth, has visibility of this being sustained in the medium term, you can be sure of buyer interest; striking while the iron is hot is key.
The development of a clear exit strategy is vital even when a sale is not imminent. Being prepared to exit puts you in a much stronger position for when the opportunity arises. It also gives you time to explore the different exit routes available to you and lay the foundations for a successful process.
That being said, a strategy will ready you for a sale but it will not ensure that buyers or investors pay a premium, especially if your business has unresolved issues. In order to achieve the highest possible valuation, the best time to exit is when your business is in a position of strength. To determine this, several key factors need to be considered:
- Can the business continue to prosper without you?
- Do you have a good, defensible market position?
- Does your company have the ability to scale?
- Are your products or services clearly differentiated in their markets?
- Have you enjoyed two or more years of sustained revenue and/or profit
- Do you have good visibility over the current year’s financial performance?
If the answer is yes to these questions, maybe now is the time to set the exit wheels in motion.