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Planning your Exit Strategy - Part Two

London, UK (23/09/2010)

LONDON (FD Centre) Article by James Nicholson-Smith, The FD Centre

Planning an exit from your business, can be a very emotional decision. But as we've already highlighted in Part One of our guide to Planning your Exit Strategy, the earlier you build the exit strategy into your business plans, the easier it will be to remove yourself from the emotional and place yourself into the strategic space.

Understanding the Financial Value of Your Business
Businesses that have achieved the highest price are acquired as a strategic addition to a trade buyer. Therefore, an effective exit plan will only be complete when the strategic appeal to potential buyers is at its peak. This does not mean that the business has fulfilled its potential because acquirers want to enjoy that benefit themselves.

Therefore an effective exit plan must set out the strategic plan clearly and be able to show what has been done and the value that has been delivered as a result. The acquirer then does not need too much imagination to consider how much extra value he will enjoy as a result of implementing the rest of the strategic plan.

The best prices are achieved whereby the implementation of that strategy can be accelerated because of the other activities of the acquiring group or because the same strategy could be adopted in other parts of that group with similar effect.

Managing the Exit/Acquisition Process
The management need to fully understand the process of exit and ensure that they have a good FD and the right team of advisers around them. Whilst this can be daunting because of the level of fees involved, the acquirer's team can smell an inexperienced advisor a long way off and will try all the tricks in the game to get an advantage during the negotiations.

This often determines how much of the deal is paid in cash as opposed to as an "earn out" or deferred consideration or held in ESCROW for 12 months as security for unrealised assets.

Larger organisations often have acquisitions teams, whose role it is to acquire businesses to expand the group. Richard Wakeley former Acquisitions director at a £300m acquisitive packaging company comments, " we would agree the acquisition strategy at main board level identifying the profile of businesses that we would like to acquire.

This enabled my team and I to send out messages through the corporate finance community expressing our interest in these areas and to bring businesses that fit our desired profile to us. Consequently, if I was planning an exit, the first thing I would do would be to go to 2-3 corporate finance houses and ask them what the market was looking for in a businesses like my own. This would greatly help in positioning the company to secure the most interest."

Finally, an important element of effective exit planning is in the presentation of the performance of the business. To be fit for sale, a business needs a track record of management accounts and forecasts that have proved reliable and neat record keeping of the assets, liabilities and contractual position of the business. This does not increase the attraction of the business, but it does significantly change the chances of actually completing a sale on acceptable terms.

As the largest provider of part-time Finance Directors in the UK, the FD Centre can help businesses achieve their strategic objectives. To find out if your business could benefit from a FREE Business Strategic Review and receive valuable advice for your business's financial planning, contact Andrew Forster.


Click here to register for a Free Business Strategic Review today

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