Preparing your business for sale involves various activities, not least of which is tidying up all the rough edges that often become tolerated when running a business and can tend to become more prevalent due to entropy – the tendency for all things to degrade or run down unless attention and effort are put into them. However, there are also a number of specific activities that should be considered when preparing for an exit.
So, let’s go through each of the sections of the Exit Readiness Map and you can download a copy here.
Download our handy one page Exit Readiness Map to keep all this information in one place and identify gaps in your readiness. Keep it as a live document to index all the information your gather. Keeping it up to date with a current valuation will help you know exactly when the right time to exit is for you.
A business owner came along to a seminar we gave on this topic with his mind fixed that his business was worth nothing and his best exit would be to shut the doors. He owned the property that the business operated from, so he planned to sell it to raise money for his retirement. However, after hearing the seminar, he realised his business did have some value. He wanted to sell within six months, ideally, so there was little time to make the kinds of improvements to the business detailed, but some aspects were already in place. In the end, he managed to sell his business as a going concern and raise enough from the sale to be able to afford to keep the property, taking a rent from the new owner as a passive income. Even if it is too late to change anything, the information in this post can help you to understand, and therefore communicate, the value your business represents to a buyer.
There are five basic ways to exit your business.
Any one of the first four exit routes could be attempted after the owner’s death (route 5). Unfortunately, if the business hasn’t been prepared for management, succession or sale then it is unlikely to be as smooth, lucrative and sustainable as you would probably like. It is therefore preferable to put steps in place to exit before this point.
Fortunately, the steps involved in any of the proactive methods (1-3) are largely the same, the main differences being (i) the intent (ii) preparation of the people involved to accept the new leadership, or (iii) preparation of people for their new leadership roles and (iv) finding a buyer if going that route. That might sound a lot, but almost everything else with regards to preparing the business is the same. You’ll want to show historical growth and a future growth plan. Depending on the size of the business, you’ll want to have a management team in place and documented systems and processes. You’ll want to have good repeat business, good customer satisfaction and positive cashflow during the growth cycle. Together, these will make the business attractive to a buyer (so the sale will be more lucrative for you) or they will give the new management a fast start as they take over the business and make the first months, even years, far easier.
So let’s look at selling the business as a specific case. A supplementary reason for considering sale as a specific case is that the value of your business is a useful measure of the success of your business strategy and management. Business valuations are often based on a multiple of profits, the multiple being based on the perceived scalability and sustainability of the business in the future, i.e. the success of your strategy to grow historically and the remaining growth that can be perceived in your growth plans and strategic documentation (as created so far).
A well-managed growing business with good cashflow and few dependencies on critical suppliers, staff, customers or the owner, will sell for a higher multiple. As high as 40+ times has been recorded by our clients. On the other hand, the average owner operated business sold for a multiple of 3.6 times their annual operating profit in 2016, with some selling for less than their annual profit.
Based on these figures alone, it is definitely worth investing time and money on building a saleable business. It might be the biggest pay day you have and even if you don’t sell, you know it is in good shape when you step down as MD and take up the shareholder role as your only involvement. Subsequently, you can monitor the future value of the business as a KPI of the management you entrust with your asset.
If you’d like to find out how much your business could be worth right now, try our online business valuation calculator and when you’re ready, get in touch to put a strategy in place to maximise the value of your business.
When the GB Olympic Relay Team heads out onto the track, they have practiced the race many, many times. Those of you as old as me remember some of the embarrassments of the 80s when we had some of the best sprinters in the world, but kept on dropping the baton. These days, British relay runners are far better prepared.
Running a business is like a relay race – at some point, after you’ve run your leg, you pass the baton to someone else. Whether through a sale, merger, family or management succession, you pass the baton.
When talking to business owners about the value of their shareholding, we are often asked “what’s the formula to value my business?” In fact, there are various formulae in common use for valuing a business based on the three main approaches that can be taken.
There are a number of business valuation methods available suited to different purposes, circumstances and types of business. It is often advisable to value a business by multiple methods to get a thorough understanding of the value of a business and the assumptions made to derive the different figures.
Access our free, confidential online business valuation calculator here for a quick valuation of your business. Get in touch for a more detailed valuation.There are many reasons to obtain a detailed business valuation, including:
Whatever your specific reasons, having a full valuation of your company puts you in a much stronger position – whether for negotiation or sales.
To begin with, it’s always better to exit a business on your terms rather than being forced into it. Far better to have a plan to exit the business and do it in an ordered way. The alternative is death, ill health or insolvency which leave all manner of chaos behind.
Assuming you’re looking for a proactive exit from your business your options are: