As an entrepreneur turned corporate finance professional, I thought I could give some unique insights into exiting from a business
I have established and exited from a number of business ventures prior to sitting on the other side of the table as an advisor and probably the only more stressful endeavour for an entrepreneur other than managing a business is exiting from it.
Typically both activities have to be carried out simultaneously and this can be demanding for an experienced entrepreneur and even more for one embarking on the process for the first time.
Having set up and exited from my own businesses, I retrained to advise entrepreneurs who were considering doing the same. The experience of sitting on both sides of the sale process has given me a distinct perspective and helped me to identify the key areas and actions, outlined below, which entrepreneurs often overlook or neglect but which are key to achieving the best price on sale.
Plan the exit
For many entrepreneurs, particularly in the early years, the focus is on the strategy and vision for building the business, marketing and sales, and less so on strict planning and financial details. Yet in selling a business, thorough planning is vital. How the business is positioned, what are the aims of the sale, full cash-out or partial realisation, the deal structure etc are critical to achieving the maximum value. If you are thinking of an exit it is really crucial to start the process well in advance of when you want it to happen, I recommend at least 18 months before.
Focus on the right buyer
In my experience of both selling my own businesses and advising clients to do the same, identifying the right buyer early on in the sales process is crucial. For example, trade as opposed to financial buyers, such as private equity houses, will have different aims. In general, a financial buyer looks for growth opportunities, and a trade buyer looks for a strategic fit with its products and services so it’s important to align a business’ profile correctly with the type of buyer being sought to excite interest and achieve optimum value.
Strengthen the financial function
Growth businesses often have strong sales and marketing teams but neglect their finance functions. However, buyers will want to undertake extensive due diligence both on management teams and operational and financial performance. Having a strong finance function that can readily provide the extensive information that buyers require is vital to avoid deal-threatening delays and keep the sales process running smoothly.
It’s important to set out a timetable, and stick to it. Giving ample time for potential buyers to carry out due diligence, review performance and business plans and to assess a company’s finances is key. As the M&A market becomes increasingly competitive, businesses cannot afford to allow delays in the sale process to devalue the business as it can prompt buyers to have second thoughts – and price-chipping to begin.
Temper valuation expectations
One of the most common difficulties for entrepreneurs is that they can often be too close to their business to objectively assess its value. Demand too high a price and be inflexible and potential buyers are lost. Far better to create competitive tension among buyers by floating a realistic price to attract a range of buyers and let competition help drive up the valuation. I have helped many of our clients to secure ambitious yet realistic exit valuations through sharing my own experience both as an entrepreneur and as an adviser looking to drive the multiple of the deal on their behalf.
Don’t spend the money first
Give the impression to a potential buyer that a price and a deal is close to being accepted and begin to think how to spend the sales proceeds and this will filter through into the negotiations and could lead to the buyer subtly trying to lower the price at the last minute. Best to keep thoughts of new sports cars, luxury yachts and holidays at the back of the mind and only spend the money when the proceeds from the sale have been banked.
Just one last word of advice, although you would expect me to say this, you should really retain a professional advisor who has done it before. Don’t try and do it all yourself, your business will suffer during the process and the deal value may decrease or it may fall through because of it, I know from my own first experience.
Good luck with your endeavours and get in touch if you want to hear more ramblings.
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