helping entrepreneurs create, build and realise value

Exit planning

Exit Planning

Selling your business is not something that you should embark on without ensuring that it is in the best possible shape and before you do anything, you should carefully consider your strategic options.

The best exits are achieved when sufficient time is given to planning for a sale of the business and focusing attention on those areas that matter to buyers. The exit planning period is measured in months (12-24) not weeks, and allows entrepreneurs to make permanent and identifiable changes to the business, which will be valued by the buyer.

Many of the issues that require attention during exit planning are common to all businesses. Buyers want to have confidence around the numbers, historic, current and future, and accordingly good quality management information systems are a must. In our experience, the issues highlighted diagrammatically below, are all business features that require close attention during exit planning, and if dealt with appropriately, can have a material impact on the price you achieve at exit.

The role of Realise Capital Partners is to define the opportunities and risks presented by these business features, their impact on business valuation, and maintain a firm discipline in addressing them, thereby allowing the business owner to concentrate their energies on running the core business.

Shareholder Aspirations

  • Understand and clarify the aspirations of key shareholders. Do they have a common exit horizon and similar valuation expectations
  • If external shareholders are involved (business angels, private equity), is there a mismatch in the exit strategy or is it aligned across the shareholder base

Succession

  • Identify key management that will remain in the business, post deal
  • Lock-in and incentivize (if required), key technical, operational and sales employees
  • Consider personal role, post transaction. Full exit or on-going role?

Buyer Profile

  • Consider fit with potential purchasers. Competitors, complementary businesses, those looking for international expansion?
  • Look at their acquisition track record, stated strategy, gaps in geographic or product/service offer
  • Looking to target those businesses which will pay a strategic premium

Quality of Earnings

  • Demonstrate consistency of underlying earnings and sustainability for the future
  • Reconcile year on year movements in profitability and growth
  • Show margins are defensible and repeatable in future years

Working Capital

  • Exit transaction will be “debt free/cash free”. Manage debtor/WIP/stock days downwards and ensure demonstrable over a 12 month period
  • Prepare cash-flow forecasts to identify forward working capital needs.
  • Run sensitivities to understand the relationship the between working capital and growth

Good Management Information

  • Monthly management accounts, KPI’s and statutory accounts prepared on a timely basis.
  • Budgetary planning processes clear and resulting forecasts shown to be accurate
  • Appropriate risk management and governance in place, including regular board meetings

Tax

  • Ensure all principal shareholders entitled to capital tax treatment on the sale of their shares
  • Excess cash in the business to be managed appropriately
  • Identify and clear up any areas of tax risk.
  • Necessary clearances sought in advance for any complex schemes/arrangements

Due Diligence

  • All historic and current financial data collated and summarized
  • Examples of 3rd party contracts collated (employee, supplier, customer)
  • Any IP, trademarks and registrations documented
  • Prepare all information in a data room

There are many actions that the seller can take in planning for an exit.  Our role is to help the owner to develop a sensible and pragmatic plan and implement changes knowing that marginal improvements in the areas we have identified can potentially have a big impact on the valuation on exit.