Exit Planning In 6 Easy Steps
- Mar 10, 2022
- 4 min read
Written by: Christine Nicholson, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
With less than 2% of all business owners knowing what their business is worth, it’s surprising that more than 70% of them are relying on their business to fund their retirement. So, if this is you, here’s some easy steps to improving the value of your business AND increasing your future financial security.
Step 1: Find Out Where You Are Right Now
Getting a business valuation can be quick, easy and inexpensive. Armed with a valuation you can more easily handle any speculative approaches. There are a lot of buyers out there right now thinking they can pick up bargains – if you don’t know how much you are worth, how do you know if you are in the bargain basement?
And it’s not just your financial value you should get a grip of, it’s the general health of your business that has value (or detracts from it). Having an idea of what your business strengths and weaknesses are means you can spend your time and energy on the factors that add the most value.
Step 2: Protect Your Assets
When you know what you’ve got you can start to build some resilience and protection into it. Too many business owners have partner shareholders but no shareholder agreement that will protect them if one or the other get incapacitated or, worse, dies. When the going is good, it’s a good time to sit down and thrash out all the scenarios and how you want to deal with them. As the old saying goes, “good fences make good neighbours” – good contracts make for good relationships.
And it’s not just documentation. There might be a good opportunity to get insurance coverage of the right level so that should the worse happen everyone is looked after. If the business owner dies often that leaves the family sorting out what’s left without an income.
Step 3: Protect Your Business
Getting your business plans documented and shared with the people who are going to be running the business is a missing link in so many businesses and makes them worthless and harder to operate. Having good governance processes and systems in place help with all the other aspect of protecting your business. This means having the right people in the right roles, doing the right things at the right times for the right reasons. Giving your people visibility on the goals and plans AND the ability to track that they are heading in the right direction is liberating. Most owner managed businesses do not share meaningful operating numbers with their staff and that leaves the employees working in the dark.
Step 4: Get Exit Ready
Understanding what the exit journey is going to be like and being prepared for it is a complete blank for 90% of business owners. They are literally going into the biggest financial transaction of their lives blind. No wonder the process fails so often and leaves many owners scared for the remainder of their business lives. Getting ready is probably the hardest part of the journey because, for the owner, there is a requirement for a mindset shift. The more your business relies on you the owner, the less your business is worth. Reducing reliance means succession planning. Letting go is difficult for many.
On top of that, you also need to produce financial forecasts and plans. You’ll need to be prepared to bear all to the potential buyer, and it’s much easier if it’s already tidy and edited.
Step 5: The Sale Process
It’s not advised to go through your first sale process alone (or any future sale processes for that matter, but most business owners only do this once). You’ll need an exit team, including an experienced, qualified M&A lawyer and usually a broker. The broker is a bit like a real estate agent. They negotiate on your behalf so you need to be clear on what you want and what is a deal-breaker. Once you’ve got a potential buyer there is a process which can feel like a battle. It starts with the Heads of Terms (the first overarching negotiation), then leads to a period of Due Diligence. This part of the process can feel like hell. As Winston Churchill once said, “When in Hell keep going”. Finally, you’ll get to the final sale agreement document which is the last piece of the negotiation puzzle. It isn’t over till this is signed and the money is transferred.
Step 6: The Final Act
When the Sale and Purchase Agreement is completed, there are often future commitments to consider such as any earn-out clauses, warranties and indemnities or contingencies. Signing is the beginning of the end and the start of your next phase of life – one without the business. Many business owners get caught up in earn-outs that they can’t control or that just make them miserable. Be prepared for this if you are handcuffed to your business for a period after the transfer of ownership.
Remember it’s never too early to start planning for your future financial security with some of these simple measures. If you’d like to see how to exit ready your business is, give this 3-minute quiz a try. ‒ you’ll get a short report on how you are doing.
Christine Nicholson is a multi-award-winning Business Mentor, author of 4 business books, a regular keynote speaker and a businesswoman who has built multi-million turnover businesses over the last 30 years. She’s started several successful multi-million turnover businesses, as well as business ventures for others, including taking one from bankruptcy to an 8-figure exist in 18 months. She has spent a few years accidentally running a zoo! Find her at www.businessmentoruk.com
Christine Nicholson, Executive Contributor Brainz Magazine
I am Christine Nicholson, an author, speaker and award-winning Professional Business Mentor who works with multi-million turnover business owners of technology, engineering or product/services businesses.
I'm UK Business Mentor of the Year 2021 and a Global Top 50 Woman in Accounting. I've appeared on BBC talking about business!
christine@christinenicholson.co.uk
0333 567 8011
