Exiting is often the biggest deal any entrepreneur will ever engage in yet, it’s often the one for which they are least equipped for and this is likely to cost them dearly.
So here are our top tips as you begin to contemplate an exit and want to enjoy an awesomely successful new life:
Start early; there’s a lot to do and once you get going the project will take on a life of its own and dominate yours. As with any military operation the 6 Ps apply: Perfect Preparation and Planning Prevent P***-poor Performance! One client who is in the midst of a transaction (the 2nd this year as the 1st buyer lost their funding) recently remarked that they haven’t had a day off in 2019! This isn’t a sustainable way of working but there isn’t currently much room for anything else in his life.
Create a vision for exiting: what do you look forward to doing with your time post sale, what do you and your partner hope or dream of doing?
Build a personal financial plan which sees you “knowing your number”. This can save so much heartache once you start negotiating. Working with a world class financial planner can be game changing. They can help you and your family take advantage of a once in a lifetime opportunity to save an enormous amount of inheritance tax which generally gets overlooked due to a lack of knowledge. Plus give you confidence about how much are going to need in the future. It doesn’t have to be as much as you think.
Sense check: is the business realistically going to be able to deliver your number? If you don’t already know your accountant can probably give you a reasonably accurate estimate of how a business in your sector is valued (it is unnecessary to commission a detailed valuation which will often cost in the tens of thousands). If you are thinking of selling in 3 years time, do you expect that the business as it will look like then will be worth what you need it to be? If not, then the plan needs revising; typically either by reworking the business plan or reworking the exit timeline.
Create an execution plan. Divide up responsibilities, it generally works best having someone manage the project and someone else look after the day to day running of the business. This can help avoid the real risk of a deal falling through and you finding that the business has been neglected for 12 months. There are a few niche advisors who specialise in helping with this but they tend not to be well known. Do get in touch if you’d like an introduction. This is not the same as a corporate finance adviser.
What about an interim FD; if you don’t have an FD, then an interim can potentially add enormous value helping with the preparation for the due diligence phase, helping to prepare the numbers for an Investment Memorandum, answering purchasers numerous questions on the business plan etc. James Roach and his team at Woodrow Mercer have helped many of our clients make this sort of appointment for this (and other) reasons.
Get the business ready for sale: collate all the documentation that articulate all the contracts that the company is bound by. Tidy up messes. Common ones are bad debts, outstanding litigation, tax investigations, supplier or customer disputes / complaints, regulatory investigations etc.
Form your A teams: you need two: a business one and a personal one:
Business team – tax advice for the transaction, corporate finance to market the business to create competitive tension and help negotiate on your behalf, corporate lawyers to draft or review the Share Purchase Agreement, advice on warranties and restrictive covenants etc.
Personal – personal tax, financial planning, private client legal. These people are key to help you preserve your sanity through an intense period of your life as well as guiding you through what is for most business owners a once in a lifetime experience; so don’t skimp as there is no need to reinvent the wheel.
Final Thought: As a friend who is involved in The Alternative Board recently said to me: Your life is like a bicycle where the rear wheel represents the business, you sitting on the saddle and the front wheel (which we all know is connected to the handlebars) your personal life. It’s no good, and actually futile, pedalling the rear wheel really hard if the front wheel isn’t pointing in the right direction. So irrespective of the life stage you are in make sure your wheels are aligned so you can enjoy an awesomely successful new life. Good luck.
Posted by: Andrew Brook-Dobson | Posted in: News