For the chairman of a company, exiting is often the ultimate end goal of all their hard work. It’s therefore essential to have a strategy in place in order to make the exit as profitable as possible and for it to happen when and how you want it to.
It’s important to have objectives for your exit so you can begin to map out your process. Considering the “how?”, “who?” and “what size?” of the exit are crucial steps and this article will give three vital tips on how to tackle these questions.
1. Plan from the beginning
It may seem counterintuitive to have an exit strategy in place when you start the business, however, it is also important to consider what would be a desirable end. If you leave the creation of the exit strategy too late into the company’s life then it can make the exit difficult, less profitable and, in the worst case, impossible.
With an early and clear exit strategy, as your company’s journey progresses, you can put preparatory measures in place as you go along and avoid complications later. For instance employing an expert from outside the company to help with your exit strategy can be useful as they don’t have the emotional ties to the company that can make the process more difficult.
If you build with the end in mind then, at the right times, you can put in place solutions to problems before they arise. For example, putting in place a robust senior management team that can run the company after your exit, or making sure contracts are water tight. This will have the opportunity to make the procedure smooth and maximise the company’s value.
2. Know your company’s worth
Your company’s worth is intrinsically linked with the robustness of your exit strategy. The more focused and effective your exit strategy is, the higher the value of your company will be; and vice versa. You need to think about the desired (and realistic) value of your company as you’re creating your business’s exit strategy.
Knowing the worth of your company allows you to move onto the more practical steps of exit. It is through knowing its value that you can decide on the size of the exit, how best to do it, and of course, who best to sell it to.
3. Be clear about who you’re selling to
Though obvious, it is crucial to decide on who you are targeting to be the buyer of your company. This will inform much of your exit strategy as you look to make the business as attractive as possible to the potential purchaser.
For instance you may decide to become employee owned through an Employee Ownership Trust (EOT), which is a tax-efficient way to sell the company. By choosing this option, your exit strategy would be very much orientated to making sure the right management has been put in place and that the business has a strong sustainable future that the employees will want to be a part of.
For an EOT, you would want the company’s maximised value to be visible from the inside. For a trade sale, on the other hand, you want to have the maximised value visible from the outside.
Linked to the previous tip, knowing your worth is crucial once you’ve decided who to sell to. If you know the worth of your business you will know the fair value and maximise your profits. This could be particularly important to bear in mind if you are selling to a colleague or family member.
To conclude
Exiting your business, at its worst, could be a stressful, unprofitable and sometimes impossible process. That is why having an exit strategy in place from the beginning is crucial to maximise profits and efficiency. Knowing your company’s value will inform your exit strategy and allow you to work towards increasing that value before the sale.
It’s worth stating that knowing the value of your company is essential in the general life of your business anyway. It will inform all the decisions you make as a business, whether it’s looking for company growth, assessing your strategic direction, applying for funding or planning your exit. You need to remember that these four branches of your business are interlinked.
Having an early exit strategy plan for your business also allows you to be in complete control of when the exit happens. If there is no strategy in place you may be forced into having to exit early in a way you don’t want. There’s also the chance of not being able to exit at all because the necessary management and procedures have not been put in place.