Hammering out an exit strategy

Published on Wednesday 18 October 2006 00:57

HAVING a strategy for selling a business is equally important to corporate giants as it is to family-run businesses. Dealmakers say many Scottish entrepreneurs spend lots of time and money building up their business to a highly successful level. Yet when it comes to selling the operation, many don't have an exit strategy.

According to Bibby Financial Services, (BFS), an independent business finance company, many owners are not making the necessary provisions to ensure a successful and profitable sale.

David Matthewson, a spokes-person for BFS in Scotland, said: "Deciding to sell a business can be as exciting as starting out, with owner-managers dreaming of new plans for their future, whether it's a new business venture, travelling or retirement.

"But it is crucial to keep a clear head as there is a risk of business performance suffering while under scrutiny from potential buyers if owners become too distracted by their next goal."

BFS says the basic starting point for owner-managers - to ensure that they avoid some of the pitfalls associated with selling up - is to make sure they have a plan for the disposal.

"Planning the sale of a business at least 18 months in advance will help maximise the value drawn from the sale," says Matthewson. "Owners must set goals - be very clear on the reasons for selling the business and write down each objective."

Objectives could include: setting a target price and date of sale, securing the jobs of employees, minimising personal tax liabilities and ensuring the business has been correctly valued.

Seeking guidance is also crucial. "Choose advisers carefully. Remember, optimum support can be provided from specialists such as corporate financiers, tax experts and corporate lawyers."

Matthewson says owners need to prime their operations for a successful sale. "Sellers must ensure key elements of the business are in order, to show it in the best possible light. This should include having assets in good condition, making sure IT systems are running smoothly and formalising verbal agreements with customers and suppliers.

"It is also vital to get the finances of the business straight. Owners should exercise tight credit management and stock control to improve their working capital, and confirm that provisions for bad debt are realistic and irregularities are accounted for.

"Many financiers advise that the sale process should coincide with a newly completed set of audited accounts, as this will help reduce uncertainty of profit for potential buyers."

Bibby stresses the importance of taking time to craft the sales memorandum - which is essentially a marketing document sent initially to potential buyers. It should reveal hard facts and portray the business as attractive, illustrating its potential.

Targeting prospective buyers is crucial to a successful disposal. Matthewson says: "Anonymously approach about 30 potential buyers to gauge interest. But ensure your adviser has drawn up a confidentiality agreement - detailing all the hard facts relating to the terms of the sale - for interested buyers to sign."

The next step involves sizing up the offers. Areas to be considered at this stage include: what the seller's responsibilities and liabilities will be; how the purchase will be financed; the length of time for completion of sale and how the business will be run in the future.

The final stages involve sourcing the best deal and formalising the offer. Play off prospects against each other to promote higher bids - and be prepared to negotiate.

Matthewson concludes: "Owner-managers invest large amounts of time, effort and money, and selling is often an emotional and bittersweet experience.

"By keeping an eye on the prize, and ensuring the business is in tip-top condition for potential buyers, any owner can obtain the best price in a reasonable amount of time."