Exit Planning Top Tips

1] Focus on your desires and objectives. For many entrepreneurs, this means balancing your wishes for yourself, for your family, for your employees, for your business and in many cases, for your customers and/or suppliers. This is a tough call and will probably take considerable time. Various people might need to be consulted, not least your professional advisers who may be able to help shape your thoughts and aspirations. The team at D5 Management have considerable experience with exit planning and will be able to test your aspirations and assist you in clarifying your thoughts.

2] Start Now! The earlier you start, the better placed you will be in achieving your aspirations. It’s a long process and the sooner you start the earlier you will be ready. Whether it’s a sale or a transfer within the family, every exit specialist will tell you that companies that plan early are more likely to complete and more likely to achieve a higher price and/or a more tax efficient solution. The D5 Management team are happy to engage early.

3] The Plan is critical. Why will the business grow? Why will it not decline when you leave? Why do you win in the market? In short the business needs a business plan that explains where it currently sits in the market, where it is going, how it is run, what threats it sees and what opportunities it will exploit…. A key part in establishing the value is a solid financial plan but this is underwritten by a quality business plan that explains the key assumptions. Too often there are numbers and tables with no plan and with no plan they are just numbers & tables… The D5 Management team are experienced in working on business plans and formulating business strategies. These sessions in themselves can add considerable value to a business.

4] Timing is everything. Economic performance and company profitability tend to follow cycles and the trick is to time a transaction so that you hit the top of the curve. But you are often not in control of events. The 2008 banking crash brought many a well-planned exit to a halt, either by damaging value or by the impact on funding. And even without a global economic crisis, the right buyer might appear at the wrong time or an unforeseen health issue might undermine the best laid of plans. The team at D5 Management appreciate the constraints on time and will be able to react at speed and are equally aware of the need, at times, to apply the brakes.

5] Clear out the skeletons. Every business over a few years old is likely to have issues that have not been attended to. Have you complied with all planning permissions and building regulations? What about the Health and Safety legislation? And are you up-to date with all of your tax compliance? Whatever the issue, it WILL surface during due diligence! The D5 Management team will help you identify these issues and will assist you in resolving problems and or introducing you to the appropriate experts.

6] View your business from the perspective of the other side. The negotiation euphoria is often followed by what the psychologists call “buyer remorse”. They worry that they have paid too much, about “black holes”, about future prospects, about losing staff and about post acquisition implementation? They just worry! But if you can see the world from their perspective, you can take steps to mitigate your purchasers concerns, before they become issues. The D5 Management team have been on both sides of the fence, have suffered the buyer remorse and are well qualified to predict the areas of concern.

7] Pay down debt. Your business is likely to be valued on a debt free basis and the price is then likely to be reduced by any outstanding debt. And your buyer’s advisers are likely to value debt far more aggressively than you. The D5 Management team can help you identify debt and if instructed early enough can help pay down or restructure debt before it becomes an issue within a valuation.

8] Generate competition. Easier said than done, but having multiple potential exit plans not only improves prices but also tends to shorten timescales between offer and completion. The D5 Management team have many strategic connections and will be able to assist in your search for multiple suitors.

9] Choose your advisors. You probably have long term relationships with advisers that have served you well. But an exit is a particular transaction which requires a level of expertise and experience that is outside the remit of many advisers, whatever they may claim. The team at D5 Management have “been there and done it” from where they have built a wide network of connections, all of which have significant experience within their particular areas of expertise.

10] Prepare a plan B. The stark truth is that most transactions fail. And the impact of failure can be devastating upon a business, if not planned for and managed. Clearly the D5 Management team would prefer to see a transaction through to completion but they will also help plan for failure and assist in managing that event if the situation arises.  

This was written by Bob Drew, a Commercial FD with over 30 years’ experience in business. Bob has lived through a significant Exit when his business was sold to a private equity firm. The above Tips are borne of experience they are not lifted from a text book.