Approaching the end of February the cogs of the business world are well and truly turning. February is often a time of deep thought for business owners on the next steps to take with their business. If you are planning on selling your business, you should have an exit plan and now is the time to begin planning what action you should take to add value to your business and enable a successful exit. If this is you, read on to discover our advice on what you should do to make 2019 the year in which you plan for the successful sale of your business and capitalise on all your hard work over many years.
What is an Exit Plan?
An exit plan is a comprehensive yet actionable plan of the strategies and steps that a business owner should take to add value to their business and enable a successful exit.
As the number of people entering retirement age grows, business owners and entrepreneurs are increasingly looking to exit their business. Given this, it is becoming more important for business owners to look at ways in which they can set their business up for a successful exit that maximises the value they will realise. An exit plan is designed to do just that!
Important Factors to Consider When Developing Your Exit Plan
Business exit plans are designed to prepare business for sale and succession. As part of this they often consider a variety of factors and what impact they have. Below we discuss some of the most important factors:
Reliance on Owners
Businesses that have a high day to day reliance on their owners are generally valued at a discount to businesses that can operate autonomously with minimal dependence on their owners. A perceived risk to potential buyers is operating the business without the knowledge and relationships of the prior owner. For this reason, the business’ key operations should be allocated over to the management team through handing them greater responsibility over a period of time and allowing them to gain knowledge on the operations and build relationships with key customers and suppliers. This ensures business goodwill and knowledge is transferrable post exit.
Companies with a higher market share generally have stronger brand power and are valued at a premium to those companies with lower market share. Prior to exiting, businesses should look to focus strongly on markets where they can grow their market share without significantly reducing profit margins. Identifying key markets, competitive advantages and strategies to increase market share are crucial in executing this strategy effectively and accordingly increasing the value of a business in preparation for exit.
Customer and Supplier Contracts
When undertaking due diligence to acquire a business, a purchaser will always assess customer and supplier contracts as key indicators to the risk of the business. in preparation for exit, business owners should maximise the number of contracts in place with key customers and suppliers and strengthen the terms of each contract to attract numerous buyers and minimise the discount rate applied by potential acquirers in their valuations it is important to note that contracts are normally assessed on the basis of their materiality, the term remaining and the strength of exit penalties.
Profit Margin Trends
Benchmarking a business’ margins and profit trends to industry standards can highlight areas where a business could take simple steps to improve its profitability, sustainability and accordingly its value. Having better trends than current industry benchmarks can mean that a business is less risky than others in the industry, which can assist with generating a better outcome as part of an exit.
Contact Us Today
Having a well-planned exit strategy can assist an owner in guaranteeing the best possible outcome when going through the exit process
Quinn M&A’s expert team of M&A advisors can assist you to with all aspects of the exit planning process. Contact Quinn M&A today on +612 9223 9166 or submit an Express Enquiry to arrange a confidential no cost consultation with one of our Senior Advisors.