Business development · 14 February 2022

Top Tips on Preparing Your Business for Exit

The past year has been a tough one for small businesses, with inventory restrictions, supply chain delays, and price compression among other issues. But for those who have built successful businesses, it could well be a good time to sell, with the market stabilising and multiples at historical highs.

Some business owners understandably have no interest in looking to sell ‘their baby’, but for other entrepreneurs the moment may feel right to exit. The decision to sell may be driven by a combination of reaching an exit number they would like to achieve, a sense of reaching a personal ceiling, or the emergence of a new passion and the resulting need for capital to start a new business. Whatever your own personal motivations, articulating your reasons for selling will be crucial.

For those thinking ahead to that conversation, before reaching out to the variety of buyers out there – be that private equity, aggregators, individuals or another strategic buyer – you need to make sure that your business is best placed to stand out in a competitive market, and the sooner you begin to prepare the better.

Here are five key elements to consider when preparing a business for a potential lucrative exit.

Demonstrate a strong track record

Make sure you have your financial ducks in a row, with all the accounts up to date and clearly set out for anyone that you may decide to begin negotiations with. Buyers will always want to see evidence of a positive financial performance.  At the most basic level, they’ll be looking at the level of income generated and the corresponding cost figures, and will also want a realistic forecasting pipeline. The more information you can provide, and insight you can offer on the workings of your business,such as conversion rates and demand, the better. Think about your growth story too – will it be new channels or increased advertising for example. Help your acquirer map out a solid path to future revenue, and ideally margin growth.

Optimising your business structure

The more efficiently the business is running at the time of sale, the better the offer is likely to be, and so it is a moment to be investing time and energy into enhancing the value of the business and fine-tuning where possible. This may include looking to lower your expenses where you can, making sure your operational processes are up to date, as well as growing sales. Most acquirers will want to see a track record of consistent growth.  There is often a balance between trajectory of growth and margin – aggressive growth can come at the expense of margin as you launch new products.  As you prepare for sale try to deliver a 12 month growth story AND keep a keen eye on the margin contribution as thus will be a key driver in your valuation.

Understand and engage with your customers

A passionate, engaged and loyal customer base is a valuable asset.  It validates a brand and can often be pulled upon for new product launches.  The key here is quality, not quantity.  As cost of advertising increases and new IOS updates make PPC increasingly tough, your loyal followers on Instagram, TikTok, YouTube, etc will be an increasing valuable pillar in your business. So now is the time to turbo boost your customer service, get those positive reviews, and perhaps look to reach out to a new sector of consumer. Market your business as effectively as you can through a well thought out website and engaging social media strategy. The website needs to be user friendly, representing the brand clearly and consistently, and designed to support SEO with regular content. The messaging and brand guidelines should be carried through to your frequent social media posts, which are designed to generate some direct engagement with your customers.


 
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ABOUT THE EXPERT

Director Acquisitions at Thrasio

Franchising