In my advisory work with founders and executives of small-medium sized businesses I’ve experienced that the success of a fruitful exit is considerably increased when businesses went through an exit readiness process before going to market.
A systematic preparation for exiting the business not only makes the eventual sale process a less stressful one but it considerably increases the closure rates as well as achieving higher valuations.
The actual negotiations for an exit might take anything from 6 to 12 months but the value creation process of achieving a successful exit starts long before then.
Here 3 top recommendations for preparing to sell your business:
1. Get the company into shape
Getting the company into shape for a successful exit takes time, years even. Once the business is on a planned trajectory for an exit smart entrepreneurs initiate an exit readiness process, typically over a period of 12-24 months ahead of a transaction.
They look at all aspects of the business to:
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- identify operating, technical, commercial and financial performance opportunities and risks across the entire organisation to maximise the value of the business. This gives the business time to establish a sustainable growth path before engaging in exit negotiations.
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- get their affairs in order making sure accounting and financial reporting are sorted out, ownership structures are clarified, any legal, tax, and operational risks are taken care of. Inconsistent management accounts, missing or outdated employee or client contracts don’t present the company in a good way when negotiating a meaningful exit.
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- work on a well-articulated and substantiated long term growth plan for the business. Unless it is a fire sale the buyer will be interested in a compelling and thought through growth trajectory for the business.
2. Run a pre-sales due diligence exercise
Running a pre-sales due diligence exercise which includes all aspects of the business is hugely beneficial. It helps you to:
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- identify performance indicators and risks in the business.
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- make the actual due diligence process much smoother with less pressure on the team when negotiating a deal.
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- send a strong signal to the buyer that you have your house in order giving increased confidence and trust in the business.
3. Make yourself redundant
Particularly founders led businesses often leave it too late to put a succession plan in place, increasing the risk profile of the business as a consequence.
Putting a strong management team in place and give them time to prove that they can run the business adds substantial value to the business when entering into exit discussions. A well functional management team will give the buyer confidence that the survival and successful continuation of the business is not dependent on a single individual.