Plan Your Perfect Exit Strategy
Selling your business to the right buyer for the right price at the right time depends on the health of your business, having the right advisors, and your timing.
Get these factors right, and you can sell your business quickly.
Before putting your business up for sale, you’ll need to clarify:
- Why you want to sell the company and what you hope to achieve.
- Your ideal buyers and what their plans for the business would be.
- Your goals for the sale. Do you want an earn-out clause or a cash sale?
- How you’ll improve the current value of your business to get the best price.
- How to market your business to sellers. You need to decide whether to use business brokers to do this or do it yourself.
- The timing of the sale. You need to sell before patents, licenses, leases, etc. expire.
- Due diligence. You’ll need accountants, legal advisors, along with specialists in tax, sales, and IT to perform vendor due diligence and make that information available in a virtual or real data room for potential buyers.
- Who will negotiate the deal?
The following checklist will help you to achieve the best deal for your company.
Your Exit Plan Checklist
- Clarify why you want to sell your business
You need to decide why you want to sell the business. It’s something prospective buyers will ask you, and it will have an impact on the business sale.
For instance, do you want to retire because you’re fed up with the stress of running a business or suffering from ill-health? Or is it because you want to start a new business, or allow someone with more expertise to take it to the next level?
Your reasons for selling the business could have an impact on the timing and outcome of the sale. For instance, if you decide you must find a buyer as soon as possible, you might have to accept a lower price or less attractive deal.
- Decide what you’re selling
You need to decide if you’ll going to sell some or all of your company’s assets or the legal entity of your business as a share sale.
- Focus on areas of improvement
Identify the issues and areas of improvement in your business and develop a plan for dealing with them.
For example, how can your company become less reliant on one or two major customers or suppliers? Are there areas that will benefit from cost-cutting? Is there a potential for rapid growth in the business? Can you improve productivity?
You need to show how well the company has performed in the past few years.
Prospective buyers will expect to see at least three years of trading accounts. Buyers will be put off if they discover reports are missing or inaccurate. It will make them doubt your claims about the company’s health.
- Get your paperwork in order
Your paperwork needs to be up to date and available to prospective buyers.
They’ll want to see supplier/buyer arrangements, licenses, maintenance agreements, lease or hire purchase agreements, business rates, insurance policies, list of employees, and their contracts, along with your company incorporation documents.
If you have problems with suppliers, customers, other companies, or employees, you need to document them and, if possible, resolve them before you put the business on the market.
- Decide who will sell your business
Business brokers (or business transfer agents) can market your business for you, or you could do it on your own.
Brokers will demand a percentage of the sale if they sell on your behalf.
You also need to clarify what brokers will do to sell your business and whether you will be involved in picking and interviewing candidates.
Check for details such as extra fees or costs, termination rights, and cooling-off periods.
Look for business brokers that have experience in selling companies in your industry, in your markets, and similar size businesses.
Prospective buyers will want to know the true worth of your company. Hire a business valuation expert to do this for you.
Put together a team of trusted legal and financial advisors who have expertise in selling companies. Get their help to identify areas of the business that need attention and on how best to proceed with a sale.
- Create a confidentiality agreement
You won’t want sensitive details about your company or its sale leaked to employees, competitors, suppliers, creditors, and customers, so make sure prospective buyers sign a confidentiality agreement.
You need a team of specialists to produce a documented business strategy, healthy financials, along with information about your employees, and plant and IT systems.
That information must be made available in a real or virtual data room for prospective buyers to view and check.