Preparing for a business exit: when to do it and how to start
Business growth comes with exciting benefits – profit, expansion, industry recognition. Private businesses in particular are often a labour of love by their owners and team, nurtured from financial infancy with the greatest of care. However, once the business has reached full maturity, many owners find it's the right time to make an exit and pass on the reins to someone else.
Choosing to exit a business is never an easy decision and for many, it’s a highly personal one. We’ve broken down what you should consider – and the challenges to expect along the way.
When is the perfect time to exit a business?
Deciding the best time to exit isn’t always clear, but there is some groundwork that owners can do to identify the best time for them. Muhammad Cajee, a Director in Deloitte Private with experience in supporting clients with their own exit strategies, says that ‘while there is no magical formula that will identify when an owner is ready to exit, getting the timing right can play a big role in achieving good value from an exit. Owners should first be clear as to why they want to exit the business and what their plans are post-sale. This will often inform when the most appropriate time to exit will be.’
Muhammad also points out that prime industry opportunities can dictate a good time to exit, stating: ‘Knowing where your industry is within a cycle can help avoid selling too early (for example, when asset prices are still rising) or too late, once prices have started to drop.’
What are the fundamental elements to get right in an exit?
The most important aspect of an exit is planning. Thomas Watson, Deloitte Private Associate Director, says that often the 'back office' is missed, and companies need to ‘ensure that there are systems in place and everything is well documented’ to aid the transition.
Muhammad agrees, with his prime advice being to ‘prepare well. You need to allocate time to collate and review all relevant information on the business in order to identify any inconsistencies or obvious red flags for buyers.’
Owners should allow for anywhere between 12-24 months to take action, as they’ll need to categorise all elements of the business, from human resources information to growth opportunities and the role of the owner post-sale, if there will be one. Muhammad also emphasises that it’s crucial for owners to ‘ensure you are able to both provide accurate and granular financial information on the business, and explain why the business has performed the way it has.’
What crucial considerations do owners often miss?
Both Muhammad and Thomas stress that exiting a business takes time and a lot of forward planning, even if it seems premature. As Thomas states, ‘there's a lot of businesses out there that have already decided that they want to sell in around six months’ time, but exiting can require a three or four year plan early on to get everything in place.'
Muhammad also notes that the process itself is something that needs to be prepared for, saying, ‘selling a business takes time and can be very demanding on the owner and management team. Unless specific individuals who will be leading the process are given time to do so, along with the resources they need, it can have a negative effect on day-to-day business activities.’
What does a successful exit look like?
A successful exit is different for every owner, because each will have their own aspirations for what they want to get out of the transition. Some will be focusing on getting a high price on sale, whilst others may be more focused on ensuring that they find a buyer committed to continuing their original vision. For many, it’s key that the existing employees in the business have a new leader that will ensure that the transition is straightforward for them.
In short, it all comes down to the buyer – the perfect match for the owner’s goals is essential for making a successful exit. Muhammad states, ‘the right buyer is as much about getting along and having chemistry with them as it is about capital and strategy. It is important to find a buyer that shares the same values you have imparted on your employees, subscribes to the same culture you have created and has similar ambitions to yours.’
How does Deloitte Private support private business owners looking to exit?
Deloitte Private has a dedicated team ready to support in a variety of ways along the exit journey. Support can range from developing a key strategy and action plan through interactive workshops, to drafting marketing documents and preparing due diligence materials. They also assist with finding and approaching potential buyers if required, and can support in negotiating a deal.
If you’re considering an exit in your business and would like to find out how Deloitte Private can help you, contact Muhammad Cajee.
Jen Scouler works in the Deloitte clients & marketing team across digital content and social media. She also works closely with Deloitte Private.