Exit ready: Preparing for sale

If you’re a business owner considering an exit, then it pays to have a sale readiness plan in place well ahead of time. While shareholder and business circumstances do vary, the types of topics to consider in a sale readiness plan are outlined below.

1. Manage any key person risks

  • If you’re a key person in the business, then making yourself redundant or having a strong succession plan is important to mitigate buyer’s concerns about business performance after your departure. It can take time to find a strong replacement and support team
  • ­Other personnel risks to consider include who holds customer / supplier relationships and key business IP / know-how

2. Align shareholder objectives

  • It’s important to understand each shareholder’s objectives ahead of entering a sale process
  • Common questions to ask the shareholder group… What characteristics do we require in a buyer? Do we know our reserve price? What types of deal structures would we consider? Do we want ongoing involvement in the business? Is the business ready for a sale process?

3. Identify your buyers and how they look at value

  • Do you know who your natural buyers are and their rationale for wanting to acquire your business?
  • Assessing your business’ strengths and weaknesses in the eyes of a buyer can help guide your business decisions prior to sale and position the investment story
  • A sale readiness plan can include a program for addressing any weaknesses identified in your business

4. Improve your revenue and earnings ahead of sale

  • Demonstrating a revenue and earnings growth trend will give buyers confidence to pay more for your business
  • Often a buyer will value a business by applying a ‘multiple’ to your EBIT figure, so every additional dollar of EBIT counts at the time of sale
  • Profit improvement initiatives need to be sustainable and can take time

5. Have a clearly defined growth plan in place

  • A buyer will pay for future growth opportunities if they believe in them, so it is important to have a clearly defined growth plan
  • Examples of typical growth opportunities include new products launches, increasing share of wallet, geographic expansion or strategic acquisitions
  • Preparing a business case and partially implementing these opportunities should form part of a sale readiness plan

6. Tidy-up your back office

  • Having up-to-date corporate records can save time and stress during an intensive sale process and allow you to focus on more meaningful deal issues
  • A sale readiness plan might consider areas such as company/trust ownership structures, clean-up of financial reporting, completing an audit, separating an owner’s personal affairs from the business, tidying up legal contracts and registering / protecting IP

7. Understand the tax consequences

  • Tax outcomes can differ depending on the sale structure (e.g. share sale vs. asset sale), so it is important to understand these ahead of a sale process
  • Understanding the consequences of tax on sale process may also help to determine the reserve price

The key is to be prepared so that you can respond quickly to unsolicited approaches if they arise. A typical sale process is very intensive, so it pays to get on top of these tasks prior to engaging with a buyer.

Southgate Partners can help you develop a sale readiness plan which fits with your shareholder and business circumstances.