It’s never too early to plan your exit strategy

Whether it be passing the business on to the next generation, to key-employees, merging it with another business, or selling it on the open market, it’s beneficial to think of how you will EXIT your business well ahead of time, to ensure the process goes as smoothly as possible for all parties, and that you get the financial reward you deserve. In this article we cover the main aspects to look at to enhance your chance of a smooth transition.

Financial Results - Valuing the Business.

Just like selling a house, the deemed price on the sale of the business is simply the agreed amount between a willing buyer and seller. The business sale will be broken down into the value of tangible assets (the business’ property, plant & equipment), the stock or inventory it holds at the time of sale, and the value of the intangible assets, otherwise known as goodwill.

Valuing the goodwill of the business is determined by estimating its future economic benefits, aka it’s future profits. This is something you will be able to talk to your business advisor about and should be looked at in conjunction with the value of the tangible assets and stock. Business valuations look back at multiple years revenue, expenses, and earnings (generally 3-4) and use past results to determine future profits. Therefore, a business that has consistently performed well, will be in a better position to negotiate a higher goodwill amount.

Organisational Structure.

Strong financial results are not the only aspect any new business owner will be looking at. It’s important (and best practice) that you have a document in place clearly outlining the current organisational structure of the business. Who do you have in place, and what are their roles and responsibilities. What hours do they contribute to the business and what do you renumerate them with?

Employee Contracts.

It’s also important to make sure your employment contracts are up to date. Do the contracts in place clearly reflect the employees current role and match with the roles and responsbilities outlined in the organisational structure? Is their renumeration package up to date? And have these been signed by your employees?

Policies and Procedures.

Policies and procedure documents work alongside having employment agreements. They help to set clear expectations in the business, particularly between the employers and employees. Having policies and procedures clearly documented reduces the risk that employees will misunderstand what is expected of them and will provide greater assurance to any new business owner, or manager taking over.

Systems and Processes.

Write down your systems and processes and keep it on file. From on-boarding new clients and customers, to how you perform services, and what technology and software you use in your business, the more you have noted down, the easier any transition will be, and the more confident a new business owner/manager will feel coming to take over (making a sale more likely). Documenting systems and processes is a great asset to your business, whether you are looking to exit or not, and something we would always highly recommend. Reviewing and noting down your systems and processes is also a vital way to review how your business operates and may trigger ideas on how you might improve it.

Keep key personal in the loop and communication clear.

From stakeholders to key employees, telling key people at the right time is crucial. Any change in business ownership can be unsettling for all involved, and should be handled with care and consideration.