What to consider when preparing an exit strategy
Planning ahead is crucial to building a sellable business. Economic downturn, changes in market trends and legal regulations are just some factors that may influence a sale.
If you haven’t considered your exit strategy from the outset, it’s never too late, according to Brendan Campbell, associate director at Prosperity Advisers Group.
Prepare at least five years in advance
“Preparing at least five years in advance will give you time to make improvements to the financial performance,” Campbell says.
“If the business is sold on a cap rate or multiple, these improvements are exponentially higher in the sale price.”
During this period, be wary of changes within your industry and how they might impact your ability to sell at the price you want. Choose your timing wisely.
“Make sure you sell the business before it is too late; no-one wants to buy a video rental store anymore,” Campbell says.
Think about any leases
The last thing any prospective buyer wants is uncertainty. Make sure the sale of your business is not impacted by the lease you have on your business premises.
This can work both ways, as some purchasers want to buy the property and the business, and others want a secure location and lease.
“The key is understanding your industry, and considering the potential purchasers: will they want a business with an uncertain lease ending shortly after they buy it?” Campbell says.
Present information clearly
No one likes clutter or miscommunication. Show exactly what a purchaser needs to see and ensure it looks professional.
Most buyers are looking for a business which is growing. A business with declining sales and profits will put most purchasers off (and reduce price expectations).
The new owner will typically be looking for happy, effective staff who will be continuing with the business. Keeping staff through the transition will make things a lot smoother for your buyers.
“The adage you only get one chance at a first impression is very true when selling a business,” Campbell says.
Consider the impact
If you’re thinking of passing your business onto a child or family member, make sure you’re doing it for the right reasons.
Are they actually interested in running the business? And are they capable of doing so?
Deciding to sell means accepting it’s time to relinquish control. Whether you are selling to strangers, your family, managers and/or employees, be ready to step down.
“If you are passing on the business to the next generation, guidance can be appreciated,” Campbell says. “However, you will also need to be prepared to let the new owners make their own decisions – and their own mistakes.”
Do you know financially what you’re getting into? What about the tax implications of your decisions? How does your business structure affect the sales price?
“The tax consequences of selling a business will vary, depending on structures, price, and conditions of the contract – make sure you are getting it right,” Campbell says.