Create a successful business exit strategy with these tips

This post is by Giles Ellis, Director at GECA Chartered Accountants based in Newmarket.

 

As lead investor on several Icehouse start-up companies, I was recently invited to a presentation by Bill Payne, one of America’s most celebrated Angel investors and a former Icehouse Entrepreneur-in-Residence.

In a change from his usual subject of raising capital to fund start-ups, Bill presented on Business Exits and how to successfully achieve them, something he is well placed to comment on with many successful exits under his belt, including one that was sold for more than $30m – pre revenue!

Bill’s top tips for a successful exit strategy were as follows:

Start planning your exit strategy from day 1!

When someone starts a business, generally, the last thing on their mind is the sale or exit of their business. However, it is important that this is a consideration by the owners from the outset to ensure alignment between business operations and the eventual sale of the business.

Whilst management are focused on day to day operations, and achieving goals under the strategic plan, the Board (or someone responsible for long term strategic planning) should be aware of the need to exit the business at some point in the future and be planning for it. It is crucial if an exit opportunity arises, that the business is prepared to take advantage of this.

If no internal expertise is available, get an adviser who can help.

Know what you want for your business

When planning your exit strategy, it is important there is alignment by all investors in regard to individual exit value targets. If the majority of investors are prepared to accept 5x their investment for an exit price and one investor wants 10x their investment, a prospective sale of the business could fail due to that one investor holding out for a higher price.

Know who the buyers are

It is crucial to understand who prospective buyers may be. If you want to sell your business for $15m, you need to know who in the industry is acquiring businesses at that level.

Generally, buyers can be either a competitor, a supplier or a customer. Prepare a list of potential acquirers and conduct analysis and research to understand the buying patterns in the industry and of prospective acquirers.

A good example of this is Microsoft versus Google. Microsoft does occasional large acquisitions that are priced in the billions (WhatsApp at $9bn as an example) whereas Google continuously searches out and acquires smaller business in the $5 – $10m range.

Get to know the larger players in your industry or sector. Understand their buying patterns. Prepare a short list of potential acquirers. Position your business over time to be as attractive as possible to your target acquirer. Build relationships with management and the owners.

Don’t limit potential buyers

As the business grows, it will enter into contractual arrangements with distributors, suppliers etc. Be aware of your potential acquirers and the impact that restrictive contracts may have on their ability to get maximum value from an acquisition of your business, particularly when contracts are in regard to operations in other countries.

While a value add relationship may exist between the acquirer and the target business in the country, this may not be the case for operations in other countries and restrictive contracts may limit the value the acquirer can place on the business.

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Bills top tips for business exits were specific to start up investments, however there is considerable overlay with other businesses as well.

If you would like advice and help to create a successful exit strategy for your business, call Giles now on 0800 758 766.