Nine steps towards a successful exit strategy

1)     Value the business today: The true value of your business is undoubtedly radically different than it was in the early days. Many business owners are unaware of the current value of their business, but this is an essential factor when considering an exit strategy. When valuing your business, use the same techniques that prospective buyers will employ when determining how much your business is worth to them, such as multiple of earnings value, net book value and forward-looking business model value.

2)     Optimise the value of the business: In addition to the valuation methods discussed above, there are many other factors that influence the value of the business to prospective buyers. Actions for maximising value fall into five categories: sales and marketing; operational; financial; legal, and point of sale. Such actions include diversifying client revenues to ensure that the business is not dependent on a small number of clients; encouraging growth within your business; providing potential for expansion and ensuring that all supplier, client and employee contracts are in order.

3)     Position the business for sale: Put together a business sales team, consisting of at least a legal representative, an accountant and a business broker. You need a team of specialists if you are to achieve the maximum sale price for your business.

4)     Agree on the process and timing of the sale: Timing is everything. Agree with the business broker on the right time to sell, and whether any business improvement measures should be set in place beforehand. Pay close attention to market conditions.

5)     Establish acceptable post-sale tie-in requirements: Determine post-sale tie-ins that will be acceptable to both parties, keeping the deal attractive to the prospective buyer without giving too much away.

6)     Locate and negotiate with the right buyer: The right buyer is the one who recognises the true worth of your business and has the capital to take it on. A business broker can help you locate such a buyer.

7)     Structure the deal to minimise tax payable on the sale: To maximise the value of the sale of your business it’s important to consider the negative impact of various taxes on the sale, such as Capital Gains Tax, Stamp Duty and Income Tax, and how to reduce these.

8)     Draw up a robust contract and conditions of sale: Once a satisfactory deal has been struck with the right buyer, it’s time to put everything in writing, paying special attention to all clauses and post-sale agreements.

9)     Prepare a post-sale strategy: Life doesn’t stop once the business is sold, so it’s a good idea to have a firm vision of what things will look like after the sale, professionally and personally.

Terry Irwin is the managing director at TCii strategic and management consultants.

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