Exit Strategy

Business exit strategy: Taking your foot off the gas

What to look out for
  • Red A potential buyer is unlikely to value your business as highly as you do
  • Amber Potential buyers for your business can come from a variety of directions
  • Green Early preparation and professional advice equals more pounds in your pocket

What happens when it is time to sell your business? Take a look at the options for a trade sale, management buyout or asset sale and how you could enhance the sale price.

I’m thinking of selling my business?

The first thing I would say is start preparing for an exit route as soon as possible. There are various reasons for this, including tax, so you need to be having a conversation with your accountant and / or financial adviser to put together a strategy for the sale.

What are the options for selling my business?

I would probably start by considering who would potentially be the most likely buyers of the business.

Let’s look at some of the options.

Are there other operators within the sector who might be interested in bringing your operation into their own trading entity - trade sale?

Are there employees who would consider buying the business from you - management buyout?

Are there other individuals from outside the business who would buy and continue to operate as new shareholders - management buy-in?

The company may have to be broken up and the individual components sold, such as property, stock, vehicles and so on – asset sale.

Which type of sale is more likely, will have an impact on the strategy leading up to the transaction.

How would I approach a management buyout or buy-in?

With a management buyout for example, you’re going to want to get your existing managers / prospective purchasers ready for the deal. How are they placed financially? If their resources are limited, consider how you can help. Perhaps keep cash in the business to allow them to buy you out, which is potentially more tax efficient than just taking the cash out prior to sale. Is there a property in the business? Consider selling this to yourself or a third party to reduce the value of the business? Are the individuals ready for management? Are the key relationships currently with you? If not, it’s probably sensible to start changing this.

If you are considering a trade sale, the value of ongoing contracts may impact the value of business. Improve these as part of your sale preparation. Current profitability will also impact, so are there things that you can do to improve this, even if just short term?

Remember, a trade sale could include a deal with a different part of your supply chain.

Explain an asset sale of my business?

I mentioned that this would be a sale in parts, but these parts could all be sold to the same buyer, just that they don’t want the actual trading company. They may want to integrate your trading but not the premises.

This would potentially mean you having to find another buyer for the property or deciding to retain it yourself as a rental income stream from another party.

How much would my business be worth if I sold it?

The stock answer is “it’s worth what someone will pay for it”, because that is, of course, true.

The other truth is that you know how much time and effort you have put into building the business, the sacrifices that you have made, but on the flip side, the buyer will only care about what he or she is actually getting for their money. Detach yourself emotionally and deal with it as another business transaction.

Consider – again on a detached level - what is it that you are actually selling? It is all very well saying that you have turnover of £x, but if all those customers are non-contracted and can walk away tomorrow because their relationships are with you personally, what is this actually worth to someone else? What would you pay for it if you were the buyer?

How can I enhance the sale price of my business?

Could you put any forward contracts in place to ease some of those concerns about customers walking away? What about offering a non-competition clause in the sale agreement i.e. agreeing not to trade in that sector or geographic area for say 12 months?

Offer to stay on for say 6 months to smooth the handover of the business relationships to the new owner. Another option is to offer to take part of the sale price on a deferred basis, based on value of retained business – not necessarily the easiest thing to monitor, but a possibility and also reduces the upfront commitment of the buyer. A word of caution, you need to be comfortable in their ability to pay later instalment(s) and I would also speak with your solicitor as to how you can best control the final payment(s).

What if I can’t find a buyer for my business?

Another option might be to pay someone else to run the business for you. This would mean adopting a similar route to a management buy-in and upskill your existing management team sufficiently for them to take over or alternatively bring in new management.

This would then allow you to gradually withdraw and spend less time in the business as you become comfortable with the way that the business is run. You remain as shareholder taking dividends from the business as a continued income stream. You can still choose how much influence you have over the running of the company but be careful not to defeat your own objective of withdrawing from the business. You might decide to pass shares to the new management on an incentive basis over time, until you get to a stage where you can sell your remaining shares to the “new” management.

Useful links:

Asset finance: All the business owner needs to know

Business loans: How to bring cash into your business

Commercial property finance: Securing a commercial mortgage

Business funding: How to decide on the right type of finance

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