Many will say that the time to start planning, or at least thinking about your exit plan, is when you start the business. What would entrpreneur, Garry Diver, say ?
Probably a bit too soon, but it’s worth thinking about having a plan once the business has stabilised and it looks like it going to be around a while.
Let’s talk a bit about what we mean when we say exit. The most obvious options are:
· A trade sale, possibly to a competitor
· A private equity deal to an investment group
· A Management Buy Out
· Just closing the doors and walking away
I’ll come back to the last option a little later, but the others all have the need for some desirable attributes in your business if you are to attract buyers in the first place. And remember, what makes your business attractive to a potential buyer aren’t necessarily the same factors that have made it a successful business for you.
So what should you focus on to make the business attractive to a buyer?
It might seem that being profitable is the most important criteria. It’s important, but not the only one. These are the key factors assessed by potential purchasers.
· Strong management team
· Wide distribution of customers
· High level of recurring revenue
· Good cash flow
· Healthy order book
· Measurable lead generation program
· Brand recognition
You’ll probably think of a few more, but in truth the relative importance will depend on who’s looking and why they want to acquire you.
If it’s a trade sale, the list here is probably pretty close in order of priority, but it would take too much space to discuss the various permutations, so you’ll have to wait for an article on ‘Valuation’ for more details on what these might be. On the other hand, they may only be interested in your customer list. Which means that you can’t really tell early on which of the list here is the most important, so hedge your bets. If you take this list of priorities and treat them with something close to equal priority, as time goes on the most important will emerge.
So, it’s up to you. Aside from all the things you need to do to develop and grow the business, stick this list on the wall or on the fridge so you can be reminded from time to time what the end-game is. Packaging the company for sale is not an event. It’s a process which parallels the development of the business, and if you wake up one day and suddenly decide you want to sell, it’s too late. After all, if you look at them, these are common sense steps to consider when growing. Come to think of it, they ARE the steps to consider if you wish to grow.
Back then to an earlier theme. If you have a successful but modest business, top up your pension to the max and one day turn out the lights and walk away.
That’s an exit strategy too.
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