Having considered triggers and drivers for your exit in Part One of my exit series, you might now be thinking about how to formulate your plan? Where do you start?
My advice would be to start with your end goals in view. Once you have clarity on why exit planning is important, what your priorities are and when you are aiming to exit you can start to think about developing a plan that (at a very high level) involves considering your non-negotiables.
It would also be sensible at this point to consider the practical steps that you can take to make the business “saleable”.
Let’s look at motivations and success factors.
For many people, the driver behind building a business is to create capital value over and above the salaries and dividends they may (or may not) extract as earnings.
Gaining clarity around how much you really need in net income from a business sale with the benefit of a savvy financial planner to form a wealth plan can counter some of the emotional turmoil associated with deciding when is the right time to exit.
Leaving some opportunities untapped either strategically or, because you as a founder have reached your own limitations, keeps the potential buyer pool wide and is particularly attractive to private equity.
Testing the market and creating a presence to prove the scale of the opportunity adds further credibility to the story
You’ve built a team who have generated growth alongside you. You can reward them by selecting a buyer who you know will safeguard their future employment and create growth opportunities, or you can implement a share option scheme so they can share in the value on exit. A blended approach can also work.
Perhaps you established the business with a mission and want to see the impact of this continue to grow? This pushes the buyer selection process down a slightly different route as you need to understand how that buyer will add value to the existing model, driving more impact in a sustainable way trusting in their ability to continue the legacy.
If the business is reliant on you as the founder for key functions such as rainmaking, customer relationship management and supply chain it will significantly limit your options for exit and the value of the business.
Any buyer will assess how easily they can replace what you are doing, if it’s a trade player chances are they will be able to but that won’t necessarily translate to value.
The most important part of exit planning is to make yourself effectively redundant from anything that involves generating growth or winning, retaining and servicing customers.
Is the team capable of running the business without you? Identify what doesn’t happen when you are not around and fill the gap through either development of existing team members or making key hires, which might require giving away some value in the form of share options or profit but if well managed will lead to increased value when you can demonstrate independence.
Is there transactional activity in your market? If so then who are the active buyers and what are the prevailing multiples. If not, time to consider a change in strategy if you want to exit in the short term.
Analysing reference transactions, even for larger businesses, to understand what attracted the buyers and led to higher or lower valuations can help to inform your strategy to create multiple exit options.
Use the deal analysis process to understand who the key investors, strategic players and advisers are in the space and get yourself on their radar.
Businesses who invest time getting to know a well-considered shortlist of potential suitors over time have a higher chance of reaching the value and agreement on non-negotiables from a legacy or management perspective.
There are numerous benefits to taking a long-term approach to exit readiness, including effective stakeholder management, employee retention through incentivisation and clarity of strategy but most of all it should create more confidence in a successful outcome when committing to a process.
If you want to learn more get in touch!
This blog was written by Charlotte Ashton, Founder Director of valued Vestd partner, The Implicit.