How small business owners can plan their exit to attract a buyer
Preparing to sell your business can be daunting, but it doesn’t have to be that way. Cavendish Corporate Finance has advice for a successful exit
Considering exiting your business? Through proper preparation and planning, you can attract the right buyer, avoid the classic pitfalls and maximise the value of your business.
1. Have a plan
Rather than rushing to sell your business, have a comprehensive exit strategy in place from the outset.
This will minimise the time you spend on the sale, help avoid common hazards and enable you to grasp any sale opportunities as they arise. Without an exit plan in place, you risk settling for a low valuation or seeing negotiations falter.
Your plan should cover the whole exit process, including:
- Identifying the most likely type of buyer that will give you the best price
- Positioning the business to get you the best valuation and ensuring that you are ready for the due diligence process
- Demonstrating a growth strategy and having the right team in place.
Always allow for a degree of flexibility so you can take advantage of the most appropriate timing, for example when you receive an approach or there is a change in your market place.
2. Remember that timing is everything
Timing is key to achieving the best price on sale and is one of the key drivers of the value your business will ultimately achieve.
Timing your sale for when your sector is performing well will further boost your business’s desirability to buyers, and as a consequence, its sale value. If there are numerous transactions in your sector, keep your eye on the market and ensure you are exit-ready so that you can capitalise on any opportunities or interest from potential buyers.
3. Identify your buyer – do you want a trade buyer or financial buyer?
There are two main types of buyer: trade buyers and financial buyers, such as private equity groups.
These buyers will have very different priorities: trade buyers will be looking to acquire a business whose products or services that they can integrate with their own, whereas financial buyers will be looking to identify private companies with strong growth potential, a great team and competitive advantages in order to make a good return on their investment.
Once you have identified which type of buyer is likely to give you the best value on exit, make your business as attractive as possible to them.
For example, if you are targeting a trade buyer, demonstrate how your business can be easily integrated and form synergies in their existing business.
With a financial buyer, focus on demonstrating strong growth potential and resilient revenue streams.
4. Know your company’s USP
Properly communicate your business’s unique selling point (USP)
Potential buyers will also be monitoring your competitors, so you need to know what makes you stand out from them and therefore makes your business more valuable to the buyer. This could be anything from a unique proprietary software, a differentiated positioning with your customers or a market leading position.
5. Be ready for due diligence
Failing at the due diligence stage can set back negotiations or, in the worse cast scenario, result in discussions being terminated.
Before embarking on the sales process, make sure that you are clear on the information the buyer expects you to provide, this will cover all aspects of the business including leases, tax liabilities and employment contracts, and take steps to protect your intellectual property (IP).
For knowledge intensive industries especially, any deficiency in patent or other IP registrations has the potential to be a deal breaker.
6. Keep up business momentum throughout the sales process
The sales process overall will be lengthy and any buyer will be watching your business’ performance throughout.
Having the right people in place is crucial here – you need a management team that will ensure all aspects of the sale can be handled, without distracting from the business’s core operation.
This should involve bringing on board an experienced full-time finance director, and bolstering your legal resources to ensure that all detailed information required by the buyers can be easily supplied.
7. Demonstrate that the business still has strong growth potential
Potential buyers will expect to see not only that the business has hit key milestones, but also has potential for further expansion e.g. demonstrating the ability to broaden your client base or expand into new markets.
Ambitious projections need to be supported by compelling evidence as far-fetched claims will not survive the intense scrutiny of the due diligence process.
As well as having a convincing growth strategy, your business should also be able to demonstrate that it has the funds or cashflow to support this growth or that plans are in place to raise the necessary finance.
Selling your business? Follow these steps first:
- Have an exit strategy in place
- Monitor the market to maximise your business' value
- Identify your buyer – trade buyer or financial buyer?
- Communicate your USP
- Make sure you are ready for the due diligence process
- Have the right people in place to manage the exit
- Ensure you have a convincing growth strategy and compelling evidence that your business will continue to thrive
For more free and advice and information on selling your business, click here.
Caroline Belcher is partner, head of exit planning practice and co-head of financial services at Cavendish Corporate Finance.