Preparing for a Successful Business Exit
cbassdev on September 3, 2024
Successfully Exiting a Small Business
Running an SME in Cumbria presents its share of challenges. Over the past two years, two-thirds of Britain’s small business owners have found it to be the most challenging period since starting their ventures. Looking ahead, nearly half of them fear that the next 12 months could be even more difficult. Here are some of the factors contributing to these challenges:
- Staffing and recruitment, finding and retaining skilled staff can be difficult. The demand often exceeds the available talent pool in the area.
- Accommodation for staff, finding suitable accommodation for staff can be tricky. The surge in second home ownership, Airbnb rentals, and high rental costs for remaining properties adds to the challenge.
- Soaring energy prices and the overall cost of living in rural parts of the country, such as Cumbria can be higher, impacting both businesses and their employees.
- Supply chain pressures, businesses face disruptions due to significant increase in the cost of raw material prices, some food prices have gone up by more than 25% in the last twelve months. Shortage in stocks for some products have also increased lead times significantly.
- Mental health and well-being, managing stress and mental health in the workplace is crucial for both business owners and employees.
- Finally, the uncertain economic climate, coupled with high interest rates can make decision-making more complex. Cash is king.
Despite the challenges, there are notable success stories of businesses flourishing in Cumbria. In most cases these businesses have managed to differentiate their product or service offering, whilst maintaining high-quality standards and providing excellent customer service.
However, if your goal still is to move forward with your exit strategy now is the time to start planning. You need to consider providing up-to-date accurate financial records, conducting market research, and understanding team dynamics. By doing so, you will develop a compelling narrative, emphasise your company’s value, and align all your resources long before you officially enter the market. Let us now consider a number of critical steps.
- Decide if you are personally ready to sell. The critical first step in selling is vetting your own readiness. Are you prepared to part with a business entity that you have built over several years. If you are considering selling, start with yourself, are you in a good place to rest on your laurels and move on to something else?
- Developing an exit plan means you do not have to face the decision to close your business alone. If you are a sole trader, a partner, or a director of a limited liability company, you will need to consult with various stakeholders. Then consider getting help from accountants, solicitors, bankers, tax professionals and HMRC. Creating an exit plan before finalising the decision to close your operations can facilitate a smoother closure process.
- Communicate your plan well in advance. Selling a company can be a dramatic event for everyone involved. Even if your employees have a fair chance of surviving the transition, are they prepared for the flood of changing processes and expectations that new employers bring?
- Financial readiness is vital to support your valuation of the company. Accurate financial records are critical. You are not talking about profit margins or investor funding, which makes it easy to downplay its importance. Nothing could be further from the truth. Simply glancing at disorganised or uncertain financial records could discourage potential buyers. Achieving financial clarity is crucial, and it is worth noting that numerous small and medium-sized businesses lack in-house financial expertise. Having five years or more of financial accounts is one of the easiest ways to justify your valuation of the business. Without it, potential buyers or private equity firms may scrutinise your financials to negotiate a lower price. Proper data collection and clean analysis can yield insights that do not just help you direct your brand in the here and now.
- Develop your ideal buyer profile. What kind of partner do you want to engage with? Buyers are particularly interested in companies with a robust growth potential or a unique market position that complements their existing offerings. Finding the right buyer ensures shared interests and the possibility of a more favourable deal for the seller.
- Getting ready for exit. Once you have assessed yourself, your staff, your customers, your market, and your value in the eyes of potential buyers, it is time to start setting the stage to accelerate a healthy, high-profit sale. Before your exit window gets closer, evaluate your financial preparedness, adhere to compliance requirements, and address operational and organisational readiness.
- Finally, maintain business as usual. Do not let your business lose steam because you are thinking of parting ways. On the contrary, a thriving business with no future will not appeal to a buyer. Keep running things with the same energy and creativity that got you this far. Balancing stability during the lead-up to a sale with planning for future growth is crucial. While maintaining stability is a priority, do not neglect innovation and expanding your market reach. These efforts not only enhance your business’s appeal to potential buyers but also ensures its long-term viability, regardless of whether a sale occurs.
Now that you have a plan it is time to consider disposal options:
- Family succession – passing the business to a family member ensures continuity but requires careful planning and communication.
- Selling to a partner or an investor – if you have co-owners, selling your share to a trusted partner or investor allows the business to continue operating with minimal disruption.
- Management and employee buyouts (MBOs) – where employees or management team members purchase the business, maintaining its existing culture and operations.
- Merging or acquisition – combining forces with another similar business. Selling your business to a third-party company, often a competitor, can help you maintain control over negotiations. However, this process can be time-consuming and is not guaranteed to succeed.
- Liquidation or bankruptcy may have to be considered. If other options are not viable, winding down the business or declaring bankruptcy may be necessary.
Remember, each strategy has pros and cons, so it is essential to assess your specific situation and your goals. If you need personalised advice, consider speaking with specialist business advisors, such as CBASS, they will help you explore your options and plan for a successful exit.
Ray McCreadie – August 2024.
Strategic Planning & Delivery Lead – CBASS
- Category: Business