Thought Leadership

Getting set for selling – how SMART thinking now can significantly increase value on exit

8th April 2016

Selling your business is often the ultimate goal of a successful entrepreneur. But in order to get the optimal outcome, it helps to think of the sale as a process, not a fixed moment in time. And that process can start years before the actual sale itself. In order to improve the likelihood of a successful exit, and to maximize valuation, actions to consider include:

  • Develop a clear idea of who the potential buyers are and why. What’s the value to them? Start to build meaningful relationships with relevant business units because most acquisitions are made, or seriously contemplated, where the buyer already knows the target.
  • Bear in mind that the best buyers are not always the most obvious ones. Who can you enable or who would pay a premium to enter your market?
  • Understand your buyers’ priorities.  It is often the buyer, not you, who determines timing, so make sure you know when they have a strategic imperative to act.
  • Plan to be the market leader in a growth sector, even if niche. This will make you more attractive and more valuable.
  • If applicable, ensure that your IP is well protected and relevant to the interests of your likely buyers.
  • Be prepared. If there is an inbound enquiry, even if it comes before you are fully ready, you will need to respond quickly and efficiently and potentially kick off a full-blown process, if you want to make the most of it.

At least 6-12 months before initiating a sale, you should start to prepare the business and get things in good shape for sale. This is so that when the time comes, you can run a slick and well-managed process, and make it as easy as possible for the potential buyers to reach a decision in a timely manner, and maximise competitive tension. Key issues to consider include:

  • Ensure you can clearly measure the value drivers in the business and that your key performance indicators (KPIs) reflect these
  • Prepare forecasts which accurately reflect the full potential of the business, underpinned by assumptions and verifiable data drawn from historic performance or reputable sources
  • Focus on maximising profitability by driving out extraneous costs, and make your supply chain and operations as efficient and well documented as possible
  • Reduce complexity where possible, such as shutting down inactive overseas subsidiaries, streamlining your capital structure and addressing balance sheet complexities
  • Develop really good management reporting, so that the financial parameters that measure and monitor the business are clearly stated in line with internationally recognised accounting practices
  • And finally ensure that you have enough senior management resources to allow you to focus on the sale, without adversely affecting the day-to-day performance of the business.

Strategic insight and knowledge of the buyer community, together with good planning and preparation will put you in a great place to run a sales process, and will significantly improve your chances of achieving the best possible exit.