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The Art of the Deal

London, UK (23/09/2010)

LONDON (FD Centre) Helping business owners develeop an exit strategy and selling their business

An article by Colin Mills, The FD Centre
 
When is the right time to sell your business? Should having an exit strategy form part of your overall business development plans or should a business use their gut instinct and continue to operate until ‘it feels right to sell'.

Colin Mills, Founder and CEO of the FD Centre shares his experiences with two illustrations from contrasting real life business situations:-
 
TYPE A - "Start with the End in Mind" Approach

A planned logical approach that is likely to yield best value, but usually takes years to deliver, and can mean you never quite get to the situation where you're ready to exit!
This was the exit approach taken by client A, where the business was owned 50/50 by its two shareholders, with one seeking to retire in 5 years from the start of the process. The process below illustrates the key steps this client took.

Step1 - Decide on the broad shape of what the business needed to look like in 5 years.
The FD Centre sat down with the 2 business owners and agreed broad parameters, such as:-
Size of business to create sell-on appeal (was at that time £6M turnover and targeted £25M for exit).
Plan to divorce management from shareholder owners (critical to allow value to the realised at exit).
Plan to get from where the business was to where it needed to be to exit.
Invest in skill sets to make sure you've got the money to deliver the plan.
Invest in skill sets to check out your future business shape has got good exit value.
 
Step 2 - Work relentlessly to deliver the plan, bearing in mind the following realities:-
Exit plans mostly fail, not because there's anything wrong with the plan, but managements don't execute plans effectively. Make sure you get managers who you like and can get on with.
This client (shareholders) invested time and money in management control and reporting systems that gave them confidence they knew what was going on, but allowed the management they had recruited to manage! Most owners can't resist jumping back in the moment something goes wrong - and it will!
Recognise that the shareholder role is about adapting business strategies and plans as you go along. The world will change to what you originally thought - be prepared to change with it.
 
Step 3 - The exit. Invest in the right skill sets to make sure you get maximum value and remember:-
Drive a hard bargain on exit advisors, but get the best you can.
Make sure your existing financial forecasts are rock solid otherwise they will be used against you to chip the price.
Get your management thoroughly prepared to deliver great exit presentations - it can add millions.
This process took 5 years, with a couple of key set-backs along the way, but the results are likely to be spectacular for the owners, in terms of pound notes generated! This client is in the final part of the sale process currently.

Type B - "Take the Opportunity when it comes along" Approach

Requires much less time, and little exit planning, but can yield good results. It means thinking about, and focusing on positioning yourself for when you appear on someone's radar.
Usually for the owner/dictator! Adopted by Client B a £25M leisure related business. It's all about seeking to dominate a niche, being unusual or especially creative, putting yourself out to be recognised as an industry expert and getting yourself onto larger players radars.
For owners preferring this approach, it's still important to consider the following:-
Make sure the business you are building has good strategic value. It's good to be different in some way!
At the exit stage all the aspects of step 3 above apply. Don't seek to cut corners - it will cost you!
 
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 Financial Health Check and receive valuable advice for your business's financial planning, contact Andrew Forster at FD Centre.

 

Click here  to register for a Free Business Strategic Review today



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