Scale to sale (how to exit a business like a pro)

You've poured your heart and soul into building your business from the ground up. Sleepless nights, countless cups of tea, and more spreadsheets than you care to remember. But now, you're ready for the next chapter. 

Whether you're eyeing retirement, seeking a new challenge, or simply feel it's time to cash in on your hard work, exiting your business is a monumental step. And just like every other aspect of entrepreneurship, there's an art to doing it properly.

Here's a simple guide to exiting your business on a high note.

Plan Early

Start with the end in mind. Even in the early stages, have a rough idea of your exit strategy. This foresight will guide your decisions and make the eventual sale smoother.

Key considerations

• Company Structure - Is your business set up in a way that's attractive to potential buyers?
• Accounting Practices - Are you using methods that clearly demonstrate your business's financial health?
• Intellectual Property - Have you protected your innovations and brand?

Your exit strategy may evolve, but having a general direction helps you make informed decisions along the way.

Tidy Up‍

Before putting your business on the market, ensure everything is in order.

This means:

• Clean, audited financial records
• Up-to-date legal documents
• Streamlined operations
• Documented processes

A well-organised business is more attractive to potential buyers.

Build a Strong Team‍

Develop a capable management team that can run the business without you. This reduces the perceived risk for buyers and can increase your company's value.

Focus on Growth‍

Demonstrate scalable, profitable growth. Identify your key growth drivers and invest in them. Remember, quality growth is more important than growth at any cost.

Diversify Your Customer Base‍

A diverse customer base reduces risk and demonstrates the broad appeal of your product or service. If a significant portion of your revenue comes from a single client or a small group of clients, it's time to branch out.

Action steps:

• Analyse your current customer base
• Identify your most profitable customers and their characteristics
• Target similar prospects in different industries or geographical areas
• Look for opportunities to upsell or cross-sell to existing customers

Embrace Technology‍

Stay current with technology. Use modern software, embrace data analytics, and consider developing proprietary tech or intellectual property.

Don't forget about your online presence. A strong digital footprint – including a user-friendly website, active social media accounts, and positive online reviews – can make your business more attractive to potential buyers.

Create Recurring Revenue‍

Predictable, recurring revenue is the holy grail for many buyers. It provides stability and makes future cash flows easier to forecast.

Ideas to explore:

• Launch a subscription service
• Offer maintenance contracts
• Develop a software-as-a-service (SaaS) product that complements your core offering

Even if recurring revenue doesn't become your primary business model, having a portion of your income coming from predictable sources can make your company more attractive to potential buyers.

Know Your Worth‍

As you prepare to sell, it's crucial to have a realistic understanding of what your business is worth. While you might have an emotional attachment to your company, buyers will be looking at cold, hard numbers.

Valuation methods to consider:Multiple of earnings (EBITDA), Discounted cash flow, Asset-based valuation and Comparable company analysis.

Consider engaging a professional business valuation expert to provide an objective assessment. They can also help you identify areas where you might be able to increase your company's value before putting it on the market.

Time It Right‍

Choosing the right time to sell can have a significant impact on the success of your exit. This involves considering both internal and external factors.

Internal factors:

• Is your business on an upward trajectory?
• Do you have a clear plan for future expansion?
• Is your management team strong and stable?‍

‍External factors:

• What's the state of your industry?
• Are there favourable market conditions?
• Is there consolidation happening in your sector?

Also, consider your personal circumstances. Are you mentally prepared to let go? Do you have a plan for what comes next?

Choose the Right Exit Strategy

There are multiple ways to exit, including:

• Selling to a competitor
• Management buyout
• Employee ownership
• Going public
• Selling to private equity

Research each option and choose the one that best fits your goals.

Prepare for Due Diligence‍

Once you've found a potential buyer, prepare yourself for a thorough due diligence process. This is where the buyer will scrutinise every aspect of your business.

Key documents to gather:

• Financial statements and tax returns
• Customer and supplier contracts
• Employee agreements and HR policies
• Lease agreements and property documents
• Intellectual property documentation
• Compliance and regulatory certifications

Consider setting up a virtual data room where you can securely store and share these documents with potential buyers.

Negotiate Wisely‍

When it comes time to negotiate, remember that knowledge is power. The more you understand about your business's value, the buyer's motivations, and the broader market conditions, the stronger your position will be.

Tips for successful negotiation:

• Be prepared to justify your asking price with solid data and projections
• Remain flexible – consider non-monetary terms that might be valuable
• Engage a professional negotiator or M&A advisor to represent your interests
• Don't be afraid to walk away if the deal doesn't meet your needs
  

Plan the Transition‍

Your role doesn't end when you sign on the dotted line. A smooth transition is crucial for the success of the sale and can impact whether you receive the full value of any earn-outs or deferred payments.

Elements of a good transition plan:

• Training and knowledge transfer for key roles
• Introduction to important clients and suppliers
• Handover of systems and processes
• Communication plan for employees and stakeholders

Be prepared to stay involved for a period after the sale, whether in a consulting capacity or as part of an earn-out agreement.

Take Care of Yourself‍

Last but certainly not least, don't neglect your personal planning. Selling your business will likely result in a significant influx of cash, and it's important to have a plan for managing this wealth.

Steps to consider:

• Engage a financial advisor to help navigate tax implications and investment opportunities
• Consider estate planning
• Think about your next steps – retirement, new venture, or other interests

Remember, a successful exit isn't just about the price tag. It's about ensuring a smooth transition that sets the business up for continued success while allowing you to move confidently into your next chapter.

Exiting your business is a complex process that requires careful planning and execution. By focusing on scalable growth, building a strong team, and presenting a well-organised, profitable operation, you can maximise your chances of a successful sale.

Remember, the goal isn't just to get the highest price – it's to ensure a smooth transition that sets the business up for continued success while allowing you to move on to your next chapter with confidence and financial security.