Whenever a company decides to exit a market, there are several critical steps that should not be missed out. Exiting is more than just selling the business; it involves developing and implementing a strategy.
Is it necessary to have a systematic way of exiting? By all means, yes. This ensures a smooth handing over. Any successor is definitely willing to pay for the value of a company that has facilitated the exiting by having a proper plan and implementing it to the later. Considering that a business is not only the evaluated financially but also in terms of non tangible assets such as customer base and the brand, a proper plan should be made, not unexpectedly, but intentionally. When this is done, it will be a win – win for both parties.
The following are five basic steps that every business must follow in order to have a successful exit.
1. Selecting an execution team
It is important for the company to select a team of experts and advisors with technical expertise and whenever necessary, hire business consultants. The team’s mandate is to evaluate options available and provide expert advice in order to make the exit successful. Ideally, the team should include tax experts, experts in company law, business development, human resources and strategic planning experts. This will ensure that all important aspects of the business are handled. The execution team should be flexible enough to adjust the plan in case of any changes.
The team in charge of planning an exit should be well versed with technical knowledge so as to have a 3600 well written and executable plan. In addition, they should be realistic.
2. Choosing an exit strategy
There are several alternatives when planning for an exit. The first option in most cases is entirely selling the business, however, that may not be the best strategy depending on the situation. Merging with another company is among the options that should be considered; this being the option of joining with another company that provides the same services. The company might opt to sell the business to the management (management buyouts) and/or employees (employee buyout). Partial or full liquidation is an option as well. Different aspects will have to be evaluated in order to zero down on one path such as; the state of the market, the liquidity needs of the company and the long-term needs and long-term potential of the company.
3. Goal setting
In order to have a successful exit, there has to be a clear goal for the ‘afterlife’ of the business, depending on the chosen exit plan. The goals should be aligned to the strategy. If the set goals are in conflict with the long-term strategy of the business, then the exit will not be successful. The goals should be clearly set, with timelines. In addition, the goals should increase the value of the business. The business is way more than the financial values. Issues like intellectual property, relationships built with customers, employees and business processes should be put in consideration. A strategy is successful if the goals to be implemented increase the value of the intangible assets that the business has acquired over time.
4. Create an exit plan
Without a plan, the goals are meaningless. One should put in mind that a good exit strategy cannot work within a short period of time. It is advisable to even set an exit strategy before starting a business. Reason being, whenever a company faces financial strain, more often than not, they will rush through to ensure that they secure as much as possible. In the process, the company might lose more than it would have if a well thought out plan was in place from the beginning. It is advisable to have a plan, and then update it as time goes by. The plan should include the goals, an overview of the different strategies, the plan to execute the goals, a risk management analysis and a contingency plans.
5. Aligning business growth with the exit strategy
Keeping in mind that the main goal is to ensure you get the maximum value out of the exit, the business growth should be hand in hand with the plan. Ensuring that the stability of the business is hand in hand with the exit plans cushions the business from an unsuccessful exit. It is important to ensure that the systems in place such that the buyer can pick up from where you left without any hitch. This requires a lot of consistency.
Other than the steps discussed, there are several pitfalls to avoid when selling a business. Getting into a deal too fast is one of them. It might be tempting to say yes to the first investor that wants to buy your business, however, patience is key. Ensure that you look into all potential buyers deeply before committing.
More often than not, business owners are too focused on cutting costs such that they end up hiring inexpensive consultants to execute the plan. An experienced team, regardless of how much you will have to spend, might save the business in the long run. Ensure that you select the best team.
Focusing on the needs of the business rather than the needs of the market is a risky path. Ensure that you are as objective as possible on even why you want to sell the business.
If the steps are followed to the later, you are guaranteed to have value for your business.