Preparing your small business for an exit

This piece, in association with Bibby Financial Services, looks at why it is always worth thinking about an exit plan, even in the early stages of your business.


This piece, in association with Bibby Financial Services, looks at why it is always worth thinking about an exit plan, even in the early stages of your business.

You might not be considering your future exit at the time of starting your company, but having a plan in mind from the beginning tells business and investment partners that you are serious about what you’re looking to achieve.

IglooBooks CEO John Styring advises that in order to get the most for your company you should think about the process several years before to maximise value. ‘It never hurts to be prepared and ensuring you have your accounts in order will also help you run the business day-to-day,’ he adds.

Also, it is important to study every part of your business from the perspective of a potential buyer.

‘Look at your company for flaws you would criticise in your competitors. Your accounts, brand and business plan – nothing should escape observation. This will allow you to ensure the first impression a potential buyer has of your business is a good one.’

It is a must to make sure you also have up-to-date accounts and cash flow statements and if there are any anomalies that they can be easily explained. ‘The time this takes will pay off in the value it provides the buyer in the event of a sale,’ says Styring.

When preparing for sale it is also sensible to cut any excessive expenses. This way the buyer doesn’t have to cut any costs on top of the basic outlay of running the business. It also shows that you run a tight ship.

Jeff Barber, partner at BTG Corporate Finance says that it’s always best to ensure that vendors take an active approach to selling their business, rather than simply putting up a ‘for sale’ sign.

‘By approaching potential buyers or advisers directly they are more likely to get a price that reflects the company’s worth, and find a buyer that is looking for the skills or services that it offers,’ he says.

A business is only worth what a buyer is prepared to pay for it, so identifying the right company is crucial to getting the best price.

However, sellers shouldn’t feel obliged to stick with the first adviser they meet – it’s important to find a partner that understands the business and can help to develop an appropriate exit strategy that will enhance a business’ value through effective preparation and presentation.

Barber adds, ‘We are regularly approached by firms and individuals on the look-out for companies they can acquire, whether to expand their geographic coverage, add specific skills or services to their offering, or to simply increase their size in the marketplace to give them a competitive advantage.

‘It’s important to note that prices for firms at the smaller end of the market have remained fairly static for the past 6-7 years, but multiples on larger deals have begun to grow.’

Lining up the suitors

When you start receiving bids, don’t feel pressured to accept the first offer that comes through the door, says Styring. ‘If there’s at least one interested party, the odds are there are probably more.’

‘Show the buyer a bright future – demonstrate the potential of your business and how added financial support could fast track growth. Show how you’re noticeably different from the competition and how you are targeting opportunities for growth.’

Before finalising the deal, it should be business as usual for staff, customers and suppliers. Any uncertainty can damage business relations and spook the buyer, he adds.

Also, Styring advises to be clear about your reasons for selling. ‘It may be you were made an offer you can’t refuse or you may feel that the business and staff have better prospects under a new owner. Whatever the reason be sure to communicate any substantive changes to working practices that can be expected as part of the deal.’

James Averdieck, founder of chocolate pudding brand Gu, decided to exit his company in 2011 through a trade sale, a more lucrative route for his company at the time than private equity.

One factor Averdieck believes was key to getting the price he wanted was delivering on numbers during the process. He made sure to keep his management team focused and motivated during what is inevitably a very disruptive process.

His advice for business owners considering a sale process is to get your skeletons out in the open early and ‘don’t think you can pull wool over people’s eyes’.

‘With thousands of pounds being spent on due diligence exercises to ensure no surprises after the deal is complete, there is not much chance of a problem going undiscovered,’ he adds. 

Further reading on selling a company

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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