When you are involved in business it's essential to think about how you'll ultimately end your involvement with it. A well thought out exit strategy can help you to maximise the value you get from your business, successfully market your business to potential buyers or investors and ensure you end your involvement with as little disruption to the business as possible.
As part of preparing for a sale, matters such as structure and tax planning should be in place often many years in advance, but there will be some more detailed matters relating specifically to the business that you need to focus on typically 18-24 months before a planned sale (often called grooming a business for sale) Some of the key actions to consider and address are shown below, depending on your business there may be matters unique to your situation but in general key areas to focus on and ensure they are in order include:
- Ensure you have up to date management accounts, the up to date financial position is essential, previous year’s statutory accounts are history so up to date information is essential
- Try to show a stable financial pattern, consider the timing of major purchases or one-off exceptional costs
- Be realistic with depreciation charges, provisions for obsolete stock, and bad debt provisions
- Improve your working capital position by good stock management, tighter credit control, supplier payment management
- Ensure management information systems are working efficiently, you need to show the business is under control
- Where possible formalise contracts with customers and suppliers. Guaranteed revenue streams can have a large impact on the value of a business.
- Look at the notice period of key staff.
- Try where possible to spread your reliance away from a small number of customers. The more the business depends on its sales coming from a small number of customers the greater the negative impact will be on the value of your business.
- Consider any loose ends, for example if your property lease is expiring, think carefully about committing the business to a long term agreement.