The building blocks for exiting your business
In my experience, entrepreneurs’ desires for their business lie on a spectrum. At one end, some have no desire to part from their business – they’ll build it from the ground up, nurture it like a child and grow old with it. At the other, some envisage the day they can exit and make a profitable return from the get-go.
Business uncertainty in recent times, alongside rumours earlier this year that Capital Gains Tax could be on the rise in line with income tax, generated a boom in merger and acquisition (M&A) activity completed by Buzzacott’s Corporate Finance team ahead of the 2021 Budget. The surge in demand from scaleups racing to achieve an exit resulted in a new record high of completed deals for the quarter.
There are various ways to achieve an exit, of course. One common route is through the aforementioned M&A, which results in a company getting acquired by a larger organisation to then be grown further as its own entity or merged into the new owner. Another is through an initial public offering (IPO), whereby shares of the business are sold to investors. Other alternatives include partial exits, management buyouts and so on.
Whatever your intended route to exit though, getting there requires more than a dream – a robust plan is essential, and this is something that can often be overlooked on the journey. Here are some considerations for those who eventually plan to part ways with their business.
Aligning the team to objectives
It can be tempting for leaders to start hiring rapidly as areas of the business begin getting busier or there’s a pressure to keep up with the competition. But it’s always worth remembering that employers have an obligation to staff and recruitment shouldn’t be done on a whim, so rather than solely considering the present, forward-looking calculations should be made. If a business exit is the eventual intention, which individuals can help stack those building blocks to get there?
Growing the team is an important component of any business journey – but is this being done strategically? Patiently? It’s essential that thought really goes into what a new joiner will handle within the business and if this is the right moment to bring them on, or whether it’s too soon on the journey and they’ll have more impact at a later stage.
I often hear from clients that they mis-hired – for example, because a sales director isn’t bringing in any sales. However, it may not be the sales director at fault here, but the product or business offering that needs refining to be saleable. Leaders must quickly realise when the team needs to be adjusted, whether that’s scaling up or down, but in the same breath they need to have reasonable expectations of recruits.
Recruitment should align with business objectives. For example, while a CTO can manage the technical barriers the company needs to climb over, an FD may be the way forward to professionalise services and keep on top of financials – which will be key for a business sale. Enhancing that strategic advisory function – at the right time – with the best people will be an invaluable part of achieving an exit. Some roles aren’t necessary in the beginning, but they’ll be essential cogs in the machine when it comes to putting the company on the market for the expertise they can provide in getting to that stage, and it’s worth remembering acquirers often buy into people too.
Saving time, stress and uncertainty with KPIs
On the road to an exit, it’s paramount for leaders to keep headspace for number-crunching in addition to the other plates they’re spinning day-to-day, as potential acquirers will rightly want to know the details of the company finances when conducting their due diligence. While an FD or CFO may not be essential at the early stage of operating a business, they certainly have the specialist approach to monitor and maintain finances, and this reinforces the point about hiring strategically.
Good financial management and KPI awareness – of key metrics including customer concentration, customer retention, lifetime value of the customer and cost of acquiring a customer – will be on the radar of buyers. Leaders familiar with the specifics are better equipped to navigate the sales process.
Ultimately, keeping abreast of all the sums will save time and stress further down the line. With clean and trackable financial processes, all details needed during a sale will be readily available, rather than having to overcome a self-imposed barrier that involves backtracking and combing through years of monetary data. Failure to maintain strong financial information and controls can result in errors such as not filing options or share certificates, missing customer information, trademark and IP issues and tax filing problems, as well as uncertainty in the numbers.
I’ve seen many deals delayed, or even derailed by small issues which can fester and create doubts about the quality of a business in an acquirer’s mind. When the journey to an exit begins, leaders must do all they can to prevent any roadblocks or diversions, which could have been avoidable with the right preparation. Going from that dream of selling to make it a reality may seem overwhelming but working at it piece by piece with the right supporting team over time, instead of rushing the process, will help to make it as smooth as possible.
