It’s easy to become so preoccupied with the day-to-day running of your business that you forget to make plans for the future. This is why so few business owners have an exit strategy in place until just before they come to sell.
The good news” With these simple pre-planning tips, your MBO will run more smoothly with more profitable results.
Why an MBO?
The best case scenario for most business owners, and often the most profitable exit strategy, is to sell your business to your own managers. This route has several significant advantages:
- The managers will have experience running the business;
- They will have detailed knowledge about the value of the business; and
- Most managers have the motivation to become their own boss.
Follow these four tips to ensure a successful MBO and a smooth exit:
1. Set a date
The first thing you should consider is at what age or time you ideally want to exit the business” If you can establish a date, you will then have a timeframe to work towards. This will enable you to set yourself relevant targets that you need to complete in order to get the most out of your business when you come to sell.
This also helps to avoid the scenario of seeking a quick sale from necessity and therefore having to settle for a lower price.
2. Identify an heir
With a timeframe in mind, you then need to identify key members of staff that have the potential and/or desire to assume greater responsibilities and go on to run (and own) the business. Once you have done this, you can then begin training these staff with this in mind.
Training should include teaching them about marketing the business, giving them supervisory roles when available, promoting them to managerial positions when available, teaching them about networking and of course mentoring them on how to run the business on a daily basis.
If you want to retire in ten years time, you ought to be thinking about who has the potential to take over the business at that time, training those people and offering them share options when they hit their targets (which become available in ten years). This will encourage retention and let them know that their career is moving forward great for motivation.
3. Be a mentor
If you have adhered to tips one and two, you should already have a pool of staff members who are fully prepared and ready to take over by the time you are ready to sell.
However, remember that it is unlikely that any of them will have run a business before, so you might want to consider remaining as a part-time consultant within the business for a set period of time after the sale. This will give the buyers greater confidence in taking over the running of the business as they will have a mentor to guide them through the first few turbulent months. In addition, it will secure you an additional income and ease you into transition or retirement.
4. Apply the principle
Of course, a management buy out may not be on the cards for you. If this is the case, there are additional options available to you which can still be lucrative and attractive such as trade sales or open market sales.
Principles one to four are equally valid if you are going down one of these routes, as they will help to ensure that your business is an attractive, saleable proposition with stable and well-trained staff.
Start following these tips today neglecting them could significantly impact on the potential profitability of your sale.
Jason Hathaway is managing director and head of the commercial division at edward, hands and lewis. Jason specialises in company and commercial work, much of which is with owner-managed businesses.