When should I exit my business?

This is a question I get asked regularly. At what point is the best time to sell, close, or float a company? How long should you wait from establishment before you part ways with your business?

The truth is, it depends.

It depends on the type of business, the industry, and your own personal goals and objectives.

In a lifestyle business i.e. one that simply earns enough to provide the owner with a respectable income, the owner might decide to close shop when they are at retirement age – with no worries about trying to identify, contact, and negotiate with potential buyers for the business.

However, not all businesses can take this route – and neither will the owners wish to.

Many business owners will want to receive compensation for the blood, sweat, and tears that they have put into the business over the years in the form of a ‘payout’ from the new owners. This obviously involves a lot of prior planning, preparation, and negotiation – in fact, business owners often find that the point at which they choose to exit their business is often their most stressful period of management.

That’s why it is essential for these types of businesses to plan their exit strategies well in advance when the owner is in a less stressful environment and in possession of a much more objective, calm mindset.

We often advise that the optimum time period from planning to actually exiting a business is around 5 years. But, of course, this can vary depending on the business, the industry, and the goals and objectives of the business owner(s), as aforementioned.

As far as floating a company is concerned, this is, in most cases, even more demanding than selling a company on the open market or to internal or external management teams.

It is highly unlikely that you will be able to trade your company shares on the London Stock Exchange given that this is dominated by enormous corporations. A more realistic expectation would be to float on the AIM or PLUS.

But without secure earning streams and strong growth prospects you can basically eliminate the option of floating entirely.

Again, whilst it is hard to predict whether your organisation will be suitable for flotation during the start-up phase, it’s always a good idea to plan well ahead and work towards your exit strategy from day one – priming your company for the ultimate day of reckoning.

So in answer to the question: what’s the best point to exit a business? Again, it depends – but as a general rule, it should be during a positive time for the company but not too positive in the sense that there must still remain prospects for growth under the new owner(s).

To help you determine that ‘optimal point’, give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk today. I’ve dealt with hundreds of exit and succession cases over the years, and I can help you to maximise the value that you receive from your business.

Life insurance can be likened to business exit planning

It’s quite a strange analogy to make, so let me explain.

When we’re born, we’re thrown into this world of endless possibilities, full of opportunity and wonder.

The last thing that’s on our minds when we’re young is what will happen when we leave this world. What happens to the family and friends we leave behind? What will become of those that depend on us to survive?

All we are concerned about, at least whilst we’re young, is tackling the issues and events that present themselves in the short-term and, for the more conscientious young people amongst us, how we are going to attain the careers and lifestyles that we aspire to.

Now, liken this to setting up a new company.

You’ve just come up with a revolutionary accounting system that will completely eliminate the need for business owners or their accountants to complete accounts and returns manually. You’re not interested in where the company will be in 5-10 year’s time, you just want to get this new product patented and out to market as soon as possible before competitors develop their own systems.

But, like death, parting with your business is inevitable. It will happen eventually. And if you fail to prepare for this inevitability, you will suffer the consequences.

One dissimilarity in this analogy, however, is the persons that are affected by your actions.

If you fail to secure proper life insurance cover, and you pass away, your friends, family, and those that depend on you will suffer.

If you fail to plan your exit from your business properly, however, it’s you that will suffer. You will, most probably, receive a much lower price for your business and basically remove a huge chunk of value that you have spent all those years building up in the company.

So, the lesson is, try not to become too tied-up in the day-to-day operations of your company and don’t neglect long-term strategic planning. It might not appear to be too important during the early stages, but investing time in this activity during the start-up phase will pay dividends (literally!) when the time comes to sell your company.

And if you don’t have the time or patience to handle exit planning yourself? Outsource it to the professionals.

Arrange a no obligation chat with me, Bob Brown of Exit Success, to see what we can do for you and your business to ensure that you get the best deal possible when it’s time to exit.

Give me a call on 01709 810081 or email bb@easf.co.uk.

Fact: Most Exit Strategies Fail

Before I begin, let me say that ours don’t.

This conclusion is from data collected over industry-wide studies. They show that most family-owned businesses do not achieve the anticipated or desired results from their exit strategies.

No matter what their method of exit, be it succession, management buy-in, or management buy-out, they build a (seemingly) solid exit strategy only to discover that it does not reflect reality for one reason or another.

The reason for this?

Many exit strategies resemble more of a wish list than that of a realistic plan. People’s emotional attachment to their business means they feel it is worth more than it actually is.

Using external professionals and consultants can therefore help to inject a sense of objectivity into the valuation and planning process, ensuring that goals/objectives remain within the realms of reality.

Aside from the fact that business owners can often overvalue their companies, there is also an issue with flexibility in most exit plans. Too many exit plans are rigid and inflexible; they do not sufficiently allow for unexpected changes in the economic climate, the industry, or within the business itself.

You MUST be prepared to alter and re-work your exit plan as time goes by to ensure that it remains achievable. One of the major reasons for exit strategy failure is due to changes in the economic and business climate that have not been anticipated or accounted for in the objectives of the exit plan.

This is another good reason to bring an external professional or consultant on-board during the exit planning and implementation process. Professionals and consultants can help to tweak your exit plan according to market and industry conditions, or changes that occur within the business itself. Their objectivity, once again, also helps in that goals realistically reflect the conditions surrounding the business – not goals simply linked to what the business owner(s) would like to achieve.

See, the concept of failure is a product of predetermined goals and objectives. When you read the title of this article, it would have been reasonable for you to assume that by ‘fail’ we implied that exit strategies are the cause of this ‘failure’. When, in fact, it is simply the case that exit strategies ‘set the goalposts’ for success or failure during business exit.

So, in essence, business owners are failing themselves, by setting standards too high and expecting too much from their exit strategies.

That’s why it’s a good idea to bring in a professional or a consultant, to ensure that you – as a business owner – keep both feet firmly on the ground during the exit planning process, and also during the plan’s implementation stages.

So, to maintain objectivity during your exit planning, speak to us – the exit planning professionals – at EASF Ltd. Give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk.

What should I include in my exit plan?

This is a question I get asked quite frequently in my line of work. What should I include in my exit plan?

Although all businesses are different - they’re structured in different ways, operate in different industries, have different internal rules and procedures – the process of exiting a business, and the principles behind each stage of the process, remain largely the same.

This process is as follows:

1. Reach agreements and seek authorisation from other directors/partners to sell the company. This agreement should include the signatures of all parties involved, and should be checked over by a solicitor to ensure it stand up to legal scrutiny if any of the directors/partners decides they no longer want to sell the business and wish to oppose the decision.

2. Designate a leader and arrange a team for the selling process. If your company is only small, the team may only consist of you (the director/owner) and another director or partner. If the organisation is larger than this, it should include business executives, accountants, and legal personnel, all of whom should bring a different area of expertise and experience to the team.

3. Employ help in the form of consultants and other professionals. If you want your business exit to be a successful one, it would be a wise choice to employ the help of an exit strategy specialist – preferably one who is experienced in the type of exit you are considering.

4. Conduct a thorough review of the business and identify any problem areas. Reduce costs and boost revenue wherever possible to improve the financial attractiveness of the business.

5. Develop a list of assets and perform a physical inventory. From this you can create tax calculations and establish the value of your business.

6. Value the business. This is probably the most difficult step in the process: determining the value of your business. Because all businesses operate differently and are structured in several ways, there is no universal way to determine the value of your company. Employ the assistance of the aforementioned consultants and professionals at this point to ensure you value it properly.

7. Prepare a detailed plan of how you expect to exit the company. Include a timeline of events.

8. Announce the decision. Let clients, employees, and all other stakeholders in the business know about your decision to sell or otherwise exit from the company.

9. Implement the plan.

10. Conclude or transfer contractual obligations. Agreements with suppliers and other stakeholders need to be terminated or otherwise transferred in some manner.

11. Close operations. Be careful not to do this too early as it can affect cash flow and net value dramatically.

12. Settle debt obligations and transfer/sell business assets.

13. Prepare final financial statements and tax returns. This is important for placing closure on your legal tax obligations before you leave the company.

14. Receive tax clearance notice. Once this is received, it should be stored, along with other business records (for a minimum of seven years). You should now close your bank account.

So where does EASF Ltd. come in to this process?

We are the consultants that step three mentions. We help you value your business and guide you through the entire exit process to ensure that no important steps are missed and that you maximise the value of your business upon the point of exit.

To speak to the professionals at EASF Ltd., give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk.

How to Maximise the Sale Price of your Business

Every business owner who chooses to sell in order to exit their company wants to maximise the sale price of their business.

And rightly so.

Blood, sweat, and tears have gone into building your company into what it is today, and it is natural to pursue the best possible reward for your hard work.

But what most business owners fail to understand is that it also takes hard work to sell your business if you want the best possible financial outcome. Fail to put the work in when selling your business and you negate the hard work you have put in over previous years.

To help you get the best price for your business, here are a few things you should consider.

Who you are selling to

Selling a business is much like selling a product or service on the marketplace. You need to understand who your target market is.

Who would be interested in buying your business? Why?

Depending on your industry and the type of business you have, potential buyers could include customers, suppliers, competitors, external investors or entrepreneurs, and even internal buyers i.e. employees and/or managers.

Once you understand who you are selling your business to, then you can proceed to plan how you will make the business attractive to this target audience, and how you propose to approach them with the opportunity.

Make the opportunity attractive

If you were selling your car, would you advertise it in an unclean, untidy state?

If you were selling your house, would you allow viewings without first vacuuming and giving the bathroom tiles a good scrub?

Of course you wouldn’t.

The same principles apply when selling your business.

Tidy up any loose-ends, remove unnecessary costs, and boost sales as far as possible to make the opportunity appear attractive to potential buyers.

Inspire confidence

A hugely influential aspect, when it comes to selling your business successfully, is the level of risk that buyers perceive your business to pose.

If you can minimise the risk presented to buyers, you can maximise your chances of making the sale.

Offer to remain an employee of the business for a set period of time to help show the new owner ‘the ropes’.

You can also incorporate an ‘earn-out’ clause in the sale agreement which essentially places a proportion of the sale price under conditions of business performance. Meaning if, after the sale of your business, the buyer experiences the achievement of previously agreed financial objectives, you will receive the proportion of the sale price that was attached to the earn-out clause.

If, on the other hand, objectives are not achieved, you will not receive this proportion of the sale price.

In essence then, it provides a financial safety net for the buyer should the business performance not meet expectations.

If you incorporate all of the above measures, and negotiate well with potential buyers, you can maximise the sale price of your business.

If you would like further help and assistance with regards to preparing your business for sale, get in touch with me, Bob Brown, on 01709 810081.

Four popular exit strategies

Every business, no matter how big or small, has to part with its owner or proprietor at some point. Situations can arise that cause you to sell your business or pass it down to younger family members.

At some point, in some way, you will part from your business. Fact.

That’s why it’s a good idea to plan your exit in advance so that you are constantly working towards this ultimate goal and that necessary procedures are in place, when needed, to finally part with your company – successfully.

Here are four options available to you:

Float your company

Floating your company on the stock market can be a hugely rewarding way to exit your business, or at least step back from it somewhat.

However, flotation is unsuitable for the majority of businesses given the size and growth needed to attract potential investors and to be permitted to float your company on the stock market.

If your company does not have secure revenue streams and strong growth prospects then you can eliminate floatation as an exit option from your business.

Sell your company

This can involve either selling to external buyers, or selling to internal buyers i.e. employees.

Although selling to internal buyers may not be as profitable as selling to a trade buyer, it can often be a simpler process given that they already understand the business and its operations.

Selling your business can be made easier if you can:

· Show year-on-year increasing profitability

· Create a high-quality product or service

· Develop an innovative product or own intellectual property

· Build a strong customer base

· Recruit a high-quality team

· Maintain premises and assets in good condition

Family succession

Family succession is a case of handing the business down to another generation; whether that is a son, daughter, cousin, or nephew.

This allows you to maintain some degree of involvement in the business and keep it ‘in the family’.

If you are planning to take this option, try to involve your chosen family member(s) in the business as early as possible, not only to enable them to get a grasp of the processes and procedures, but also to develop their interest in the business and encourage them to take this career route.

Close your business

This is the simplest way to part with your business.

It is often the case in ‘lifestyle’ type businesses that the owner delivers all value therefore deeming the business inoperable, and indeed unsellable, without their skills or knowledge.

To help you decide what exit option is most suitable for you and your business, get in touch with me, Bob Brown, today on 01709 810081.

Why you need an exit strategy for your business

In my line of work, I deal with people who either don’t have the time (or the patience) to build an exit strategy for their business.

Unfortunately (although not for me), this represents the majority of business owners.

They do not appreciate the sheer importance of getting their exit plans down on paper and finalised.

Without proper planning and preparation a business has no clear purpose. Without a clear purpose, it has no direction. And without direction, how will you know when success has been achieved?

The reason most people go into business is to, eventually, boost their own personal wealth. This is the main drive for economic development, the pursuit of personal wealth and, ultimately, the pursuit of a better standard of living.

Building an exit strategy whilst the company is in its pre-start or infancy stages gives you the ability to mould and shape the development and direction of the company to ensure that this strategy can be realised and that your goals can be achieved.

In fact, not only this, but planning at this stage gives business owners a distinct advantage in terms of the mindset and situation that they are in.

See, when a business is launched, the owner is often in a strategic, relatively calm mindset. When things start to become a little busier and business begins to boom, the business owner can become a little less strategically-minded and more wrapped-up in the day-to-day operations of the company.

This means, business owners who leave exit planning until the very last minute are in a disadvantaged state of mind to that of business owners who plan their exit from the company in good time.

Having the plan written and developed at a point where they were in their clearest state of mind, in terms of goals and objectives, means that they have had the opportunity to follow this plan and know when they are at the stage to exit their business for maximum ROI.

Business exit strategy companies can help you to develop and build an exit strategy from the outset, enabling you to give yourself a distinct advantage when the time comes to part with your company.

This is what we specialise in. We have helped many business owners to maximise the value of their companies. Let us help you to maximise the value of yours, get in touch today on 01709 810081.