Jan Fletcher OBE is one of the UK’s leading entrepreneurs. She has successfully built up and run businesses in a wide range of sectors and has tackled numerous mergers, acquisitions, and business sales. She is currently focused on property investment, development and syndication, natural health products, nutraceuticals, and online media.
Over the years, Jan has held a number Chairman and NED roles, particularly helping to steer growth, investment strategies, acquisitions, and governance.
In the first instalment of a two-part blog, Jan shares her insights on how entrepreneurs should plan for an exit and offers her tips on what leaders should consider as they prepare to sell their business.
Selling your business is one of the hardest challenges you will face as an entrepreneur. “How do I plan for an exit?” is one of the questions I hear the most. The golden rule for any business deal is to always plan ahead. In most instances, you need to be thinking about what the exit strategy could be from the moment you set up your business.
There has been a big rise in entrepreneurs in recent years and, for many, they are creating a business to fund a lifestyle rather than creating a “baby” to pass on to family. Entrepreneurs need to have a clear plan exiting the business.
An exit always takes much longer than you might imagine. Preparing for a sale needs to begin years in advance. Maximizing the value of your business for a sale takes careful planning and preparation. The minute you begin to consider an exit, it’s important to get the best advice you can.
Get an Exit and M&A Advisory Team
It’s hugely important to get your ducks in a row ahead of an exit. You will need a specialist advisory team that is proficient in exits, mergers, and acquisitions. Expert advice is money well spent. They will prepare a sales prospectus and be able to independently approach and introduce prospective purchases. Your team will prepare you for what lies ahead and help you maximize the value of your business.
As you prepare for an exit, make sure all of your legal paperwork and accounts are in order. Contracts should be in place with all customers to demonstrate the value of your business. Too many businesses operate on informal agreements. These are worthless when it comes to an exit.
Next, get your business in good shape to maximize the price. Ensure that your books are in order. You must get all of your financials in good order and keep them in shape at all times to make sure that you are ready to sell when the right deal arrives. Ideally, have three years audited accounts and a forecasted three year business plan to extract the largest yield possible from your business.
Also, look at reducing your customer concentration, if possible. Diversification of your base will relax dependency on any individual customer and build strength into the business.
Preparing for an Exit
When you have all paperwork in order, look at the core competencies of the business and work to sharpen your competitive edge.
Investigate how to best protect your IP – either with patents, trademarks, copyright, etc – and review your management team. A business cannot just rely on one person. You must have the right people around you with skills to drive the business ahead.
It’s important to look after the management team and strengthen it where needed. A potential buyer will look very carefully at what they offer. Proper in-place management can add value to the business. Think about how you can incentivise them through bonus-related performance and secure their commitment. You may even want to consider giving key personnel shares long before an exit.
The less reliant a business is on the owner, the better the price will be. That is why it is so important to have a strong team. Without them, a new buyer might want to retain you in the business for a period of time. Depending on an assessment of your management team, this may even be an option you should consider.
It’s also imperative to consider when the best time to sell will be. Look at the cyclical downturns in your sector and plan a move that will coincide with the peak. Predicting this peak is not easy, so it would be wise to take advice from your specialist team, as well. If we could all make accurate predictions with certainty, we would all be billionaires!
Set out a clear plan to grow your business that coincides with the market peak at that crucial moment of your departure.
Valuing your Business
Valuing you business can be difficult. However, your advisory team will be able to help. Most look at profitability, longevity, contracts, number of customers, and turnover to generate a value. The multiples you will receive are dependent on different sectors and the current state of the market. In a quiet market, the multiples drop considerably; so think carefully about timing.
Understanding the value is hugely important. It gives you a clear indication on what you can expect and drives you to get the best possible price.
The value is increased by having a clear business plan and solid projections for the future. However, you also need the track record to show that you can deliver.
Read part two of Jan’s article here.