Planning Ahead: How to build the perfect exit strategy

Focus on the goals you want to achieve – this will help you make the necessary strategic decisions with more ease. By Matthew Hayes, Managing Director, Champions UK PLC. 

For every owner, there comes a time when a business venture comes to an end. Whether you are ready to retire or are moving on to new and exciting opportunities, there are many factors to consider prior to making any final decisions.

Planning a reliable exit strategy allows for a seamless transition to the next stage you have envisioned for your business, and ensures you are prepared for all possible outcomes.

Though there are different types of exit strategies, which can be enacted for different purposes including Initial Public Offering (IPO), Mergers and Acquisitions, Employee/Management Buyout, Trade Sale, and Investment, the overall aims of an exit strategy remain the same.

At Champions, we specialise in creating strategies which are formed long before our partners are ready to exit. By planning from the get-go, we help ensure the greatest chance of success when the time comes.

Building an effective exit plan can help you find a clear direction before selling your business, and focussing on the goals you want to achieve will ultimately help you make strategic decisions with more ease.

Creating an effective business exit strategy revolves around increasing value and limiting waste. Accordingly, an exit plan primarily helps business owners to develop an awareness of the real value of their business, understand what their business needs to maximise its value, increase EBIDTA, achieve clarity of vision and plan ahead for the next steps.

Delineating a clear exit strategy can help ensure you keep your end goal in sight throughout the whole sale process, as well as arming you with the tools and the knowledge you need to do so effectively.

It sounds obvious, but the most important part of selling a business is ensuring it looks as attractive as possible to prospective investors. Much like preparing a car or a house for sale, you’d naturally want it to look the best it possibly can so as to extract as much value as possible.

At the heart of this process is understanding and increasing EBITDA. The 3-Year Average EBITDA Growth is a valuable formula used to analyse the value of your business and its financial health, and identifying this prior to selling is essential.

EBITDA can help you see how you compare against competitors, as well as achieve a clear view of your performance and your company’s long-term profitability.

Increasing EBITDA can be a complicated and lengthy process, but the following elements are a great place to start:

Reducing costs – this involves cutting down on expenses by identifying potential services or utilities you are overpaying for, reducing production or personnel costs and more.
Managing your inventory – poor inventory management can significantly affect your expenses, and finding the right balance between what you are producing and the revenue it’s generating can help increase your working capital.
Optimising budgets for specific expenses – whether you have a dedicated budget for travel, entertainment or other expenses, reducing these costs in an effective way can make a significant difference.
Automate procedures – automating repetitive processes that depend on manual labour is an efficient way to optimise the use of resources, increasing profitability and productivity.

Preparing your company for a sale also involves preparing for due diligence, a complex process of research enacted by a buyer throughout a business transaction to gain a deeper understanding of a business and its future potential. To be ready for due diligence, you should have access to all your contracts, leases and financial statements, create clear information about your properties, assets and shareholders, identify and deal with potential liabilities, as well as ensure your accounts are up to date.

The process of selling a business is a complex one, and without the help of expert business consultants you risk making mistakes that could have easily been avoided, losing out on potential revenue as a result.