The past 5 years have been difficult for business owners seeking an exit. Is this the recession, or a reflection of a longer term reality?
With the baby boomer approaching their retirement age the landscape of the market is changing dramatically and exiting business owners will need to engage a new reality for the foreseeable future.
According to several studies approximately 1/3 of companies World Wide are held by owners over 55 year old, 70% of those companies are expected to change hands in the next 10 to 15 years.
Only a portion of these business owners will be able to reach the selling price target. Potential Buyers is a scarce commodity and too many businesses are for sale.
To overcome this issue exiting owners should try to avoid the most common mistakes sellers make:
- Allowing too little time to complete a properly executed business exit strategy.
- Having in mind a selling price without taking into account all the elements and structure of the exit transaction.
- Selling to the first and only competitor who approaches them
- Not using experienced advisors to falsely save money
- Setting high expectations based on their personal needs, ignoring the market reality
- Not exploring legitimate positioning strategies
Exiting business owners will be confronted to professional buyers investing with the expectation of a return in line with the risk. Their perception of value will be based on:
- The evidence of sustainable growth
- A strong and capable management team in place, independent from the owner, having the capacity to evaluate and manage risks
In order to execute an optimal exit strategy the business owner will have to engage professional advisors to help him/her to plan thoroughly, review all open options and negotiate with the potential buyer to find the best wealth transfer mechanism to achieve his personal goals.
To respond to the buyer’s expectancy it is important to understand what characteristics will appeal to him/her:
- The buyer will take into consideration the fundamental laws of risk and reward but a transfer will be successful only if risks have been mitigated, minimised and if the business is profitable.
- In the eyes of the buyer to be a good investment a business should:
- Operate with little or no involvement of the owner,
- Have strong proprietary products, services and processes
- Work in a systemic way
- Be able to demonstrate defensible, differentiated market position
- Have a diverse customer base
- Operate a recurring revenue business model
- Display a funnel of business growth opportunities
- Exceed the market operating margins
- Demonstrate that the risks are manageable
- Have in place reliable quality and accounting systems
- Produce Audited annual and timely internal monthly financial statements
What is an Exit? It is more than selling!
In planning an exit a business owner would have to take a series of systematic steps to fulfil his personal goals in extracting the wealth from the business in a tax efficient way. The first thing would be to determine the most appropriate strategy including:
- Selling the business to partners, strategic buyers, investors, competitors, international buyers, or the public
- Recapitalizing the business for partial liquidity
- Merging the business to achieve enhance valuation and/or marketability
- Transferring the business to family, management or employees
- Gifting the business to meet personal and/or tax planning goals
- Liquidating or partially liquidating the business
Exiting is a process, not an event. The Business owner will have to manage and implement the following process:
- Ask for a business valuation as a reference point
- Clarify his/her goals for his/her “Life-after-Business” taking into account his family expectations
- Work with a team of specialist advisors to find the optimal exit route to achieve his goals
- Prepare a written plan
- Identify and evaluate all options to determine which one is best suited to meet his requirements
- Prepare his /her business for sale to increase the value of the business for a buyer view point
- Execute the selected exit strategy
Are you curious to find out if your company is valuable take the “Value Builder” test now, it is free and confidential and only takes thirteen minutes of your time!
If you wish to build up the value of your business and would want to explore what you could do to make it sellable, please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or e- mail him at JB@macint.co.uk or visit our Blog