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The best time to plan an exit strategy

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Thursday, March 9, 2017 at 10:00AM

Question; when is the best time to plan an exit strategy?

Answer: Either before you start in business or now if you haven’t got one.

Your Exit Strategy choices could be; to sell to the highest bidder, become the chairman, hand over as a legacy to your children or sell to the staff through a management buyout (MBO).

First and foremost though, all shareholders need to agree the end-game, obtaining “Goal Congruence” then create a plan and start working together to a timescale.

So from today your overriding objective should be to build value in your business to allow you to have the freedom of choice to do any of the above.

So what are the steps?

  • Track and improve financial performance. Ensure you have up-to-date information to hand. Use visual scorecards and set and measure KPIs. This will help you understand on what to focus on, to improve cost management and business growth activities. But also shows any potential buyers that there are good working practices in place and that you know what makes your business tick.
  • Ensure your business isn’t reliant on any one person, supplier or customer. Your biggest customer should not be more that 18% of your total sales. Always have at least two potential suppliers for products or services and be acutely aware of any one staff member whom the business is totally reliant on, including yourself (point 7.). You need to mitigate any future risks to your business.
  • Tighten up your cash flow management and improve your stock turn. The more money you have tied up in Work in Progress (WIP), debtors or stock, the less the value the cheque paid to you personally when you come to sell. Note, the buyer will have to finance the business working capital.
  • Systemise processes using technology and secure operating procedures. It will not just become easier to manage the day to day but will free up your time, allowing you to step away and focus on developing your business further.
  • Ensure you have highly satisfied customers. Obtain testimonials and have proof of recent customer satisfaction levels. If you can prove high business reputation and a strong brand the business will become more attractive and the value will increase.
  • Build a portfolio of reoccurring income. If you offer a service, such as maintenance, membership or subscriptions, then focus on building these portfolios and sales channels. Establish auto renewal contracts with direct debit payments which will aid not just cash flow management but will drastically enhance the value of your business Buyers pay for a multiple of future profitability, therefore the more business that is guaranteed, the higher the multiple.
  • Step out of the owners' trap and manage yourself out of the business. If you’re the one that has the interface with the customer, deals with all the complaints, creates the product or deliverers the service, the value of your business will be heavily discounted by the buyer. As it will be very difficult to transfer the customer relationships and therefore ownership to someone else.

There is no standard calculation for valuing a business. A rough guide is somewhere between 3 and 5 times your annual net profit, if you can provide proof of a steady number of years trading.

However the more desirable you can make your business through having an attractive loyal customer base, a strong and recognised brand, guaranteed future income streams, you can show forecasted market share growth and that you’re not key to the businesses future performance, the more likely you will achieve an even higher multiple value.

At the end of the day, you may not want to sell but wouldn’t it be a great feeling to have that freedom of choice after all those long hours and years of hard graft?

“What you get by achieving your goals is not as important as what you become by achieving your goals.” - Zig Ziglar

If you are looking to review and then grow your business, Business Doctors Cumbria offers a free business health check to help you to establish a clear vision and understand the steps to fulfil your aspirations.

Click here to book your free Business Health Check.

Contact Peter Fleming 0845 163 1490 or 07966 686112 or email peterfleming@businessdoctors.co.uk or visit the Business Doctors website.

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BREXIT Seminar | Business Doctors Cumbria

Clydesdale Bank, 239 Kingstown Road, Carlisle, Cumbria, CA3 0BQ Attend this event As we head towards BREXIT, NOW could not be a better time to understand how to Future Proof your business. So why not attend this free event particularly if you are concerned about what the future may hold for you, your customer base and are unsure of your own future business plans.

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