Developing an Exit Plan

Having survived the extraordinary circumstances of the past couple of years, entrepreneurs and company shareholders should be taking stock and asking questions such as where do I want to be in five years’ time? If the intention is to have sold the business, then now is the time to start developing an exit plan.

Many companies had to reduce overheads during the initial phases of the pandemic and then, as markets recover, they have had to rebuild their corporate resource. It will pay significant future dividends if shareholders and management take the time to consider this growth phase in light of developing an exit plan and maximising the value of the business. Future vendors should take steps to make their business as attractive to prospective acquirers as possible, companies that are carefully prepared for sale can attract profit multiples of one or two points higher than a similar business not ready for the market.

Significant discounts on multiples will be seen where there is a high concentration of turnover with a small number of customers, a limited product or service range, a vulnerability to a particular supplier or a high dependency on the owners. Timing is also critical, a continuing growth story and positive outlook for the future are key to attracting strategic buyers and a premium price. Each sector and individual situation will vary.

Top tips to prepare your business for sale are:

1. Plan ahead – 5 years in advance is not too early
2. Reduce dependency on owners
3. Build senior and second tier management team
4. Ensure there is a good spread of customers
5. Spread key account management across a number of staff
6. Contract major clients for minimum periods
7. Continue to introduce new products and services
8. Provide employment contracts for key staff possibly linked to future performance
9. Develop good information systems and monthly management accounts
10. Review overheads and eliminate any surplus or non-essential costs

Implementing changes can take time and investment, for example new senior management need to be well established in the business and shareholders may need to learn how to delegate responsibility and accountability to get the best out of them. Shareholders who plan their exits in advance and take professional advice on shaping their business for sale stand to gain significantly in the medium term.

Contact one of our team to set up a no obligation discussion about planning your exit.