YOUR COMPLETE GUIDE TO BUSINESS EXIT STRATEGY
If you have decided the time is right to pass your company on to new hands, you will need to prepare thoroughly by formulating a comprehensive business exit strategy.
We will explain on this page all the key factors that need to be considered when you are planning to exit your company and how KBS Corporate can help with every aspect.
YOUR COMPLETE GUIDE TO BUSINESS EXIT STRATEGY
WHAT IS A BUSINESS EXIT STRATEGY?
When you are selling a business, you must be sure of exactly what you want to achieve. This relates to how you visualise the future – both for yourself, professionally and personally, and for the company and any staff you employ.
Those elements are more important than setting a precise timescale in which you would want everything to be concluded. You may have specific reasons to target an ideal date to complete your exit, but equally it could be prudent from a business perspective to adjust the timing to ensure you maximise your company’s market value.
WHO NEEDS A BUSINESS EXIT STRATEGY?
Essentially, every entrepreneur should have an exit strategy business plan, simply because it is beneficial to get ahead of the game, it gives you something to aim for and therefore enables you to make the most of the journey in building up the company to fulfil its potential.
Drawing up your business exit strategy at the earliest opportunity provides direction and generates motivation for you to maximise returns.
WHY IS A BUSINESS EXIT STRATEGY SO IMPORTANT?
Exit strategies for businesses are vital because they allow owners to maintain control over their company, in the sense of proactively shaping its future rather than leaving it to chance.
Business exit plans also create the best opportunity for company owners to bow out on their own terms, ensuring the business is financially secure and in the strongest possible position to thrive under new leadership.
THE BENEFITS OF HAVING A BUSINESS EXIT STRATEGY
• You will be incentivised to increase the value of your company
• Your company will be more attractive to acquirers as they will know the business has been carefully managed financially
• You can ensure an orderly and smooth transition, passing control of the company to whoever you choose
• You can safeguard the future of your company and its staff by making sure it is passed into the right hands
• When the time comes to sever ties with the company, you will be psychologically prepared for what could be a major lifestyle change
BUSINESS EXIT STRATEGY PLANNING: WHAT TO CONSIDER
• Your ambitions: What do you want to achieve with the exit strategy? An immediate or phased exit and which direction do you want your life to take with the capital received?
• Your company’s valuation: How much is your company worth and what is it likely to realise amongst potential acquirers?
• Your support team: Who will help you make the business exit strategy become reality? We can help with every aspect – contact us to find out more
• Important documents: Have you got all the key information readily available for the due diligence that the acquirer will want to undertake?
• Succession planning: If the acquirer does not want a hands-on role or to bring in their own management team, have you got leaders in place ready to take over from you?
8 TYPES OF BUSINESS EXIT STRATEGY
1. Selling to a partner or investor
If you own the company with someone else, you could sell your share to them. This type of exit strategy is likely to minimise disruption and ensure the company continues to operate as normal.
2. Family succession
This business exit plan could enable you to maintain an involvement with the company and pass your assets to your heirs. It could be wise to involve them in the business at the earliest opportunity or encourage them to find work with another company to gain an alternative insight which could later be applied upon succession.
3. Management buyout
Known as an MBO, a management buyout is when the existing management team acquire ownership from the current shareholders, often with an external financing source such as bank debt or private equity.
4. Trade sale
One of the most common types of business exit, a trade sale involves selling your company to a competitor or a company in a complementary sector which can visualise synergies or is seeking growth in a different geographical area.
5. Private equity
Private equity can allow significant realisation of value whilst positioning the company and its management team alongside a seasoned investment partner. We work closely with a wide range of private equity contacts and have achieved investments that have far exceeded our clients’ initial value expectations.
6. Initial Public Offering (IPO)
An IPO is the process of selling an equity stake (shares) to the general public in exchange for cash. You would need to partner with an investment bank to underwrite the IPO before, typically, setting an offer period for investors to purchase shares before the company is floated on the stock market.
7. Employee Ownership Trust (EOT)
An EOT is established on behalf of, and for the long-term benefit of, a company’s workforce. The EOT must own 51% or more of the shareholding but a board of directors will run the company, with no requirement to involve the employees in their decision-making processes. There are substantial tax benefits for the vendor with an EOT exit.
8. Additional routes
Additional routes to achieve a successful business exit include other institutional investors such as pension funds, mutual funds and family offices. Built from over 25 years of dealmaking, our database of potential acquirers is one of the most comprehensive in the industry.
BUSINESS EXIT STRATEGY PLANNING CHECKLIST
• Know why you want to sell your company
• Set clear expectations for what you want to achieve
• Establish the profile of your ideal buyer
• Determine everything your buyer will want to know
• Get your finances in order
• Ensure all legal and contractual matters are compliant
• Create a detailed inventory list
• Enlist the help of an expert adviser such as KBS Corporate
• Identify anyone qualified to lead the company after your exit
HOW TO WRITE AN EXIT STRATEGY FOR A BUSINESS
When formulating your business exit strategy, these are the elements you need to include:
1. What the exit will achieve for you
Along with the future prospects for your company and its employees, this is the most important factor. Write down what you want your lifestyle to consist of following the exit and how much capital will be needed to facilitate that.
2. Preferred route of exit
Do you plan to pass the company on to family members or the existing management team, or would a completely fresh approach and vision be the best outcome? This may also be influenced by how simple you want the entire process to be.
3. Which practical measures need to be taken
By this, we mean noting down a list of actions that should be undertaken to ensure the company is operating to maximum effect. It could mean investing in new equipment, facilities or personnel that will make the company as appealing as possible to a buyer.
4. Potential liabilities
Besides the practical measures, you also need to ensure the financial and administrative side is taken care of. For example, list any debts that should be paid off, settle all supplier invoices and tax liabilities, and make sure contracts and licences are compliant.
5. Work out who needs to know and when
It is essential that all stakeholders find out about a business exit strategy at the appropriate time and not before or after, especially as there are legal implications. Draw up a communication plan encompassing staff, shareholders, customers and suppliers.
WHEN AND HOW TO CARRY OUT YOUR BUSINESS EXIT STRATEGY
Implementing business exit strategy planning is not an overnight job – it is a process that can take years. Here’s our step-by-step summary of what you need to do:
1. Begin as early as possible: It is advisable to start planning your business exit strategy at least two years before initiating a sale process. Build in a wealth management plan which will help you deliver on your exit goals and decide whether you want to remain with the company in any capacity once the transaction has been completed.
2. Team up with the best adviser: At KBS Corporate, we can help with all aspects of a business exit strategy and one of the initial areas we advise on is a suitable valuation for your company. This needs to be managed carefully so that you realise maximum value without setting a price that deters potential acquirers.
3. Work out your succession plan: You may have an obvious candidate in place to step up and lead the company, in which case this aspect of planning would be straightforward. However, if not, you would need to pursue an exit strategy which depended upon the buyer bringing in their own people to take the company forward.
4. Ensure your company is a well-oiled machine: Everything needs to be ticking along like clockwork to give the best impression to potential buyers – a happy, motivated workforce operating in a clean, modern environment, with all financial and administrative aspects on point, will generate the optimum appeal.
5. Create a roadmap for the future: A buyer will want to acquire a company for which they can see the potential for considerable growth, a platform on which they can build with their own experience and insight. Make sure you highlight the key revenue streams and areas in which the company is capable of expanding its offering.
DO YOU NEED A BUSINESS EXIT STRATEGY CONSULTANT?
At KBS Corporate, we are vastly experienced in helping business owners through every stage of an exit strategy process, being alongside them every step of the way as they put into practice the life-changing decision to sell their company.
Whatever point you have reached in running your own business, you can call upon the expertise that has established us firmly as the UK’s No 1 company sales adviser. Contact us for an initial no-obligation discussion in complete confidence.
