Archive for August, 2015

Should we develop a mind-set to exit?

Business people live for the struggle of launching their business.  But one thing they often forget, is that decisions made one day can have huge implications down the road.  It is not enough to build a business, we have to make sure that we have an exit strategy to get the money back out.

This subject was discussed at the last round of the Business Exposure Group meetings.  Businesses that scale and ultimately maximise their value are the product of an owner’s almost obsessive focus on building value.

Most of the members agreed that whilst a lifestyle business was fit for purpose today, we should always have an eye on the opportunity to develop a mind-set to exit if the correct opportunity presented itself.

Generally it takes at least 18 months to prepare for exit, but by growing the management structure, spreading the customer base, improving the IT, and minuting all meetings the value can significantly increase because this is all evidence of a well-run business.

During the discussions 3 core areas of value were suggested.

  1.  Creating sustained profitability
  2.  Having clear records and processes
  3.  Building a brand

It was even suggested that the economic climate has presented a great opportunity to sell our businesses to bigger players, because over the last 2 years they have made strong profits and are now sitting on cash in the balance sheets, which could easily and should be used to invest in strategic acquisitions.  The market now has more trade buyers than for many years.

It was however surprising how few of the members actually engaged in dialogue with their bigger competitors, eg at trade fairs, in an attempt to make their bigger competitors become aware of the value and strength of our smaller companies. Such, off the record discussions are key, because companies don’t get sold – they get bought, and the need to keep close to the big guys is obvious.

Buyers are not looking for businesses that are chasing revenues, this can blur the proposition.  Buyers do not understand revenue streams derived on the hoof.  Multiple and varied revenue streams introduce unnecessary complications and additional risk.  So the main conclusion from the discussion was to keep the brand simple and focused to attract a strategic fit.

Some of the members had been approached over the years by foreign buyers, willing to pay a premium to secure a new base in the North of England.  Others had found real value in finding an appropriate advisor, who would look at the business from an objective viewpoint rather than the owner’s emotional subjective view.  The advisor would focus on the key areas of the business and suggest the areas to be worked on to achieve maximum value.  Such areas include a business audit on marketing, sales, customers, pricing, operations, management structure and compensation.

It is important that existing owners identity and resolve issues within the business before a potential buyer discovers them. Equally, ensure that the existing management team is sufficiently incentivised to stay, to maximise company value.

All in all it’s about a story and if you are selling the existing management team as the value, then they have to be as strong as possible.

Some of the more pro-active members of the group have their businesses valued by their accountants on an annual basis, so that they can fully understand the areas of weakness and the areas of opportunity in case an attractive offer comes along.

However, don’t get carried away by the one off offer, as 70% of all business sales processes collapse.  Stay focussed on your core business and have an eye for attracting multiple bidders to secure the sale.  On the other hand, put everything into place, and gradually release yourself from the day to day role of running a business and sit back a little and continue to reap the rewards on a monthly basis of your robust lifestyle business.

Either way it’s all positive as long as you have the right mind-set

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