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How to sell your business and make a profitable exit
In enterprise, how you end matters just as much as how you begin. As a founder and as an owner, it is easy to forget that you will inevitably leave at some point. After the drama of setting everything up and growing it, it can be hard to imagine how life can go on without you at the centre.
Many owners only start thinking about what happens next in the event of a crisis, whether at work or at home. At a moment when you are feeling your most vulnerable, you can find yourself forced into a sale. Or worse, you may have to contemplate bankruptcy or liquidation.
Both financially and emotionally, it pays instead to get a grasp of how you can gain full value for all your efforts, as well as keeping your tax bill to a minimum:
- From early on, have a clear sense of how far you want to take the business and how it might end up. You might be aiming for a trade sale or a flotation. You might be passing on the business to the next generation or your management team.
- Appreciate where you are in life: are you looking to retire and make as much as you can? or do you want to retain a stake and stay involved in a larger group?
- Keep track of what your business might be worth. For SMEs, the usual formula is a multiple of profits, depending on how many years it would take to recoup an investment. Other forms of valuation might come into play for strategic investors. If they can combine their business with yours, they might be happy to pay a premium of 200% or more.
- So work out who all your potential buyers might be. Your managers, your competitors and your suppliers, you all know. But what about anyone from outside looking to take the fast track into your industry?
- In the process, you will change how you think about yourself. You will become as much an investor in the business as the master of everyday events. You will also be building a team that can drive the business forward without you.
Once you feel you are ready to exit at a moment that suits you, you can think about how best to present the business and strike the right deal:
- Decide whether you are selling shares in the whole company or just different assets.
- Identify and separately manage any assets that are surplus to the future of the business.
- Improve your profitability by reviewing your costs and deferring any long-term commitments.
- Check that any contracts with your customers will transfer smoothly and settle any legal disputes.
- Assemble what experts you need in corporate finance, paying for results rather than by the hour if you can.
- Then structure the sale to take advantage of relief at 10% on capital gains.
At this point your potential buyers will be testing every aspect of your business, so be ready to discuss any forms of deferred payment or guarantees. If you can prove that you have the genuine potential to compete and prosper in the future with a strong team and operation in place, then you have given yourself every chance of achieving the premium your business deserves.