Planning Your Exit

Exit preparation is an important part of the sales procedure benefiting both the seller and the buyer in terms of valuation, desirability, performance, minimising risk and ease of due diligence.

Here is a useful insight into selling a business - what you need to know and how to help the process maximise your opportunities for success.

Making the transaction as smooth as possible

In order to prepare for a transaction, there are various internal and external factors to consider. 

Internally, a business needs to include activities to ‘put the house in order’ which will assist with the confirmatory Due Diligence phase. It confirms everything you're telling your potential buyer about the business is true.

By ensuring the following actions are completed promptly, everything is then available and watertight for the new buyer:

• Orderly business documents
• Board minutes are present
• Accounts have been filed and are completed on a consistent basis
• Management accounts are in place
• Data room is assembled
• Legal contacts with each customer are in place and there no onerous terms that would put off a buyer.

External factors are all about getting in front of and working with potential buyers over a longer period of time. These include:

• Direct interaction – building a warm relationship prior to the sales process.
• PR – undertaking an awareness campaign to find potential buyers and ensuring regular good news stories are featured in local trade publications, social media campaigns and digital marketing activities. 
• Vendor due diligence (popular in Europe and particularly valued by PE Houses) – paying someone to come into the business to complete financial due diligence in advance of the sale. This is issued to bidders in parallel with other documents. It’s a good opportunity to undertake a company health-check so that there’s time to correct any problems or challenges before the transaction processes begin. 

Optimising the business for sale

It’s important to have an exit mind-set from day one. Some businesses sell extremely quickly after inception so it can’t hurt for business founders to have half an eye regularly on their sales potential just in case of an unexpected approach. 

It’s all about the art of timing the run and knowing exactly when to come to market. By knowing the position of the sector, market and company means you can react quickly and easily if the right conditions for a sale arise. It's always good to have a 5-minute slot on Exit market conditions and valuations once a quarter during Board meetings.

The effect of Exit Preparation on selling a business

Without an M&A agenda, you don’t know when the time is right to sell, which means the process could take a lot longer and may not always be successful. A thorough Exit Preparation strategy means a shorter process and less chance of external factors impacting on the final value of the business. These factors could include market conditions, buyers being bought, M&A agendas changing or share prices taking a hit. 

Regular dialogue with buyers provides real-world feedback on timing and interest levels, so it’s very much self-fulfilling. 

Exit prep also allows buyers full visibility into the business which means a lower perceived risk and less chance of a price discount. Even during the negotiation stages, we see fewer price chips with businesses who have undertaken Exit Preparation due to there being more robust forecasting and tighter financials.

The optimisation process for exit is best started as early as possible to enable the benefits of the increased performance to follow through into the profits of the business and therefore follow through into increased valuations. 

Preferably the process should be undertaken 2-3 years in advance to allow for at least two financial cycles of the business.

Smoothing the Exit process – big company vs small company resources

The bigger the company, the easier the due diligence process tends to be, this is because they tend to have greater resources to expend on time and people. 

Sometimes, there can be over 40 people parachuting into the data room asking questions and querying factors so it’s easier for larger companies to utilise their specialised internal teams in HR, finance, operations etc.

Bigger companies also tend to have slicker financial operations thanks to Finance Directors with prior experience of M&A processes. Institutional buyers tend to be more fixated on the financial performance of the business, so bigger business with access to more professional financial advice can have a quicker and somewhat easier process than smaller businesses. 

Small businesses often don’t realise that they can cover these activities with a senior part time Finance Director who has M&A experience.

The role of the Finance Director in optimising a business for sale

Undoubtedly and quite simply, Finance Directors help to sell businesses. Some smaller businesses do have someone on the senior management team who is financially numerate, but they have to lean on the external accountant to help them get everything ready, slowing down the process and proving costly. Having an in-house expert (whether part of the payroll or on a part time engagement) ahead of time makes the advisor's job a lot easier, the buying process a lot simpler and yields a better result for everybody.

Advice for business owners embarking on this process

Selling your business is a serious matter and needs to be undertaken thoroughly and logically. We understand it can be an emotional process too, which founders don’t always expect. Exit planning is like any decision, there is a clear ROI which is extremely positive when an Exit is planned properly in advance.