At a time of political and economic turbulence, it’s never been more important to plan ahead for the future. The turn of a new year always prompts reflection about what the future holds and for many business owners, this may involve stepping away from the organisation.
However, unfortunately, this isnt as simple as making an exit, there is a large degree of planning and preparation which should be taken into account for a positive outcome.
Family businesses have experienced the same ups and downs as other organisations over recent months.
Well-managed operations have done well and, where management teams have been switched on to the importance of keeping an eye on cash flow, many bumps in the road have been absorbed without too much hardship.
Exiting this year?
For business owners looking to make their exit this year in 2020, this slowed enthusiasm from the investor pool shouldnt be an excuse to sit back and wait for it to build again.
There is a general sense within the business world that the optimal time period for planning a successful exit lies at approximately two years. In reality, there is no reason why preparations shouldnt start tomorrow or even today.
Even an apparent absence of suitable buyers can be tackled by making the business more attractive and maximising the sale price as much as possible.
In the meantime, much of the planning will deliver improvements to the financial performance of the business
No matter what route a business owner may be thinking of taking, be it a trade sale, management buy-out or attracting private equity-backed investment, there are a number of key areas which must be given attention ahead of time to ensure that the highest possible value is derived from the sale.
How’s your company’s health?
First and foremost, the business? financial health is critical and can be one of the biggest issues when preparing for a sale.
Ultimately, management teams must try to establish an attractive enterprise value and demonstrate that the business can continue in a sustainable fashion in the future.
There are several tactics which should be deployed to achieve this, usually over a 12 to 15-month window. These include working capital adjustments, reducing debtor and trade sale days, all of which ultimately would lead to a more profitable business.
As the sale values of a business are normally calculated by multiplying the profits by a set multiple, the better the bottom line, the better the valuation. It will also lead to a lower downward adjustment to the sale price as a result of working capital adjustments.
Keeping a close eye on market conditions, well ahead of time is also important.
1. Get your timing right
Is the market hot and performing well? Is it stagnating and in decline? If it’s the latter, then a drastic change of strategy may be needed. If the former, now may be a good time to exit.
Any business owner looking to sell-up must always take a close look at their own management structures. For almost all potential buyers, having a strong leadership team post-sale is going to be attractive.
Putting this in place involves identifying individual team members? strengths and weaknesses at an early stage and shaping the management structure to be as effective as possible.
Naturally, this may involve having open and honest conversations about performance and future roles, which can be tricky, especially if family members are involved.