We recently gave you some nuggets if you are strategising your business exit plan; here is another article about the actual “Mechanics of a Sale”
First have a look at one of our earlier Blogs to find out how you should start preparing your business for sale in good time – it’s never too early.
We summarise here what a typical transaction involves and what you should be thinking about NOW.
1. Develop an exit plan
This would involve looking at the overall reasons for selling the business, the timetable to sale, potential acquirers and identifying key goals which need to be met by the business to maximise the opportunity and to be seen as an attractive target.
2. Make sure all your business documentation and financials are in order
A due diligence process will be involved as part of the sale of the business and will require that all corporate records and financials are accurate and up to date. Early preparation of the key documents required and keeping in a specific database will save time later.
3. Look to add value to the business with an exit plan
Identify key areas for the business to focus on over the next couple of years. For example, a technology business should be looking at getting all intellectual property up to date (patents etc.) or a shift to a recurring revenue stream (e.g. Software as a service – SAAS).
Time spent strategically looking at how to improve profitability will be time well spent.
4. Seek professional advice for your exit plan
We cannot emphasise enough how critical it is to have the right advice when considering the sale of a business. This could be in-house through a director with specific experience or through appointment of corporate finance advisors – or a combination of the two.
For many smaller businesses in a specific sector with known competitors or potential acquirers this could be done by the management team; for larger businesses a specialist corporate finance house will be best placed to provide access to a wider pool of acquirers. For technology businesses, access to international acquirers could be important with several US companies interested in expanding overseas.
You will need to involve an experienced lawyer with relevant expertise, too.
5. Determine the value of the business
It is important to get a good balance between the aspirations of an owner and the realistic market price that can be achieved. For most businesses this is generally based either on a revenue multiple (for early stage businesses) or on a price-earnings (P/E) multiple (for later stage businesses which have reached profitability). Don’t overlook the opportunity to gain a ‘strategic premium’ for advanced technology or well protected intellectual property.
Following these steps, the final process leading up to sale will cover the identification of potential buyers, negotiation, due diligence and eventually signing the contract for sale.
Conclusion
The Tectona team of 15 commercially savvy FDs has a wealth of experience in this area, whether assisting companies in the process, working with external corporate finance advisors or acting as part-time finance directors to help build value now for an eventual sale.
Contact Tectona now if you are thinking that you might need an exit plan any some time soon.