Is Your Business M&A-Primed and Ready for Exit?

“Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental.”
Robert Kyosaki

The quote above, from Robert Kyosaki’s book, “Rich Dad, Poor Dad,” epitomises the way investors think and behave.

As a software tech entrepreneur and business owner, it is critical you are in alignment with the way investors think.

 – From the very beginning, you need to be always preparing your business for sale. That way, if an opportunity should come along that’s too good to turn down, you are primed and ready to go.

Create a Strategic Plan for the Sale of Your Business

It is vitally important that your exit plan is a component of the strategic business plan you create when you set up your business. In this way, you will know exactly where you are heading – Right from the outset.

To use the analogy of driving a car, it’s unlikely you would start driving without a clear idea of where you’re heading. Obviously, you may not know every single twist and turn of the route or even the exact roads you’ll take – But you will certainly have a clear idea of your destination - Otherwise you just wouldn’t set off.

In this context, it’s quite obvious that you wouldn’t ever set off in your car without a plan of where you’re going – And yet, very often, business owners that we meet, don’t make the same connection with their own businesses: they have a vague notion that they want to sell in 3-5 years’ time but no solid plan in place as to how they’ll achieve that.

Start Planning Your Exit Early

Planning for your exit well in advance of the actual event, gives you choice. It gives you time to set up efficient processes that will withstand acquirer scrutiny during the sale. These processes, once solidly entrenched in your business, will add value when it comes time to sell. They reduce risk for a potential buyer and demonstrate that they can come into the business and take over the reins with minimal difficulty.

Don’t fall into the trap of thinking you can begin to prepare for your sale a scant few months ahead of the desired sale date. 

This scenario is far too common. You need to plan for your exit years in advance. 

Tied in with your strategic exit plan, there are decisions that need to be made very early on that will positively impact your eventual sale price. You will also be adding value and making the acquisition and subsequent integration easier and more likely to succeed.

Additionally, there are many elements within an Exit Strategy that will not only drive the value of your business but also make you think about and look at your business differently. This clear-sighted view of your business will have a positive effect on your ongoing, strategic planning – and value.

In summary:

It’s never too early to plan your exit and, the more time you have for planning, the better the outcome. To be more precise, you gain value for your business and increase the odds of success when you start planning 3-5 years ahead of your target transition date.

High Failure Rate of Business Sales

Depending which of the many reports you believe, the failure rate for business acquisitions is quoted as being somewhere between 50% and 90%.

50% to 90% - That is a huge failure rate.

And that is why it’s so important you have a comprehensive and well-thought out plan, so you don’t become an M&A casualty and add to the depressing statistics.

Your plan should include details of how the business will operate effectively without you at its helm. What about your key executives? Would it cause major issues for the business if they were to exit?

What about your company IP and the critical expertise of key personnel?

Which management systems have you put in place to assist the seamless transfer of ownership?

Without these things in place, the business is less attractive to a buyer as additional expenditure will be needed to get things running smoothly. 

Create a Compelling Vision for Your Acquirer

It cannot be stated often enough: to achieve an optimal valuation for your business, you must have a strategic M&A exit plan that includes a vision of how the business will provide the new owner with growth and profit that will increase its value beyond current financials.

You need to clearly show the buyer how they can maximise the value and growth of your business.

Your company is likely to represent many years of hard work, not just for you, but also for your fellow colleagues and co-founders; you owe it to yourself and to them not to drop the ball at this critical stage.

Just like a parachute jump, you need to get this right – First time.

Is your Business Primed and Sale Ready?

The question of whether your business is ready to be sold and whether the sale price will meet your expectations will not be based on some mythical calculation of multiples of EBITDA.  Rather, there are many influencing factors as outlined above.

Be bold, make your plan carefully.

Pay attention to the small details. Often a deal can be sunk by the little things that can happen during an M&A transaction.  Careful planning to avoid such difficulties is never wasted.

Exit This Way…

Don’t forget to include your succession planning and business continuity plan. These enable you to transfer operational responsibility for the business to the future business managers, away from the CEO and other senior executives, who may also be exiting, 

Succession planning will give you a clear idea of your role post-sale – This could allow you to take on a more strategic role, focused on educating the next generation of managers and leaders. Developing a business continuity plan early is, in itself, a value driver in selling a business. 

And finally, while in the midst of your sale, don’t allow your focus to slide from the business’ daily activities

If you need a mentor who can show you the way, book a confidential conversation with Mark Edwards

Whichever route you decide to take, forearmed with your Exit Strategy, you have the best chance of success.