Business Exit Strategy
Selling a business requires strategic planning and careful implementation; in some cases, you may need to fundamentally change the structure of your business or the way you operate it for a few years before an intended sale.
There are three primary methods of exiting a business: closing or liquidating, merging and selling.
While selling and merging are self-explanatory, a business-owner liquidates his or her business when it has no future viability without the owner. An example can be a tax consultancy owned and operated by one individual and very much dependent on that person’s skills-set. Other businesses suitable for liquidation are those with declining profits, using rapidly-changing technology, or businesses in a sun-set industry such as the print business. To put it simply, if the value of your business assets is greater than the potential future earnings, liquidation might be your only viable option.
Why merge or get acquired
The best potential merger partner is a company that sees yours as a strategic fit with their own firm.
What will help is if you have something unique that your potential merger partner wants and can’t find elsewhere. This may be a client-base, a patented technology, or a distribution channel. You will be surprised at the premium they would be willing to pay for it.
But there are a few things you need to take care of to get your company ready to be merged or acquired. This include cleaning up the balance sheets, getting all financial statements audited, discontinuing poorly-performing products, cutting down fringe benefits, and removing any conflict of interests. Do remember that businesses or corporates will expect to see a professionally run business when they do their initial due diligence, and only then will the merger be ratified.
But if none of the above applies to your business, and you still intend to sell it, you can time the sale to take advantage of high prices, which means selling when sales are climbing and profits are strong. The sale will also depend on the general economic climate, industry outlooks, bank financing, interest rate trends, and prevailing tax laws.
It is very important to recognise from the start that you’re unlikely to get exactly what you want. Some buyers might want you to leave some finances in the business. You might also have to offer some training and remain in the business for a negotiable period until the buyer settles into the business. Sometimes the seller is offered a contract to stay on as key staff and ensure the continuity of the business. This will help grow the business further during the transitional period.
There are also instances where the seller is asked to sign a ‘restraint of trade’ or ‘non-compete’ clause.
Why use a business broker and what InCorp can do for you
As evident from above, planning your exit strategy from a business is complicated territory. While you can certainly do it yourself, many owners contract professional business brokers such as InCorp to handle the job. This has several advantages.
Firstly, our in-house accountants, tax experts, lawyers and valuation experts will help you put together a plan for your exit strategy by understanding what you want out of the sale. For example, you may need to reach a certain financial figure for the sale in order to meet your retirement goals.
In addition to this, a very important reason for using InCorp’s business brokerage services is to protect your anonymity and confidentiality. We can front for you, screen prospective buyers and advise of their seriousness, while keeping your identity secret.
This is important because advertising that your business is up for sale may affect your staff’s morale and compromise your ability to continue leading the firm. It might tighten your lines of credit as well when your lenders and suppliers get wind about the news. In some instances, you might also potentially lose your customer base, if the market interprets your intended sale as a sign of a failing business.
Plan a smart, successful business exit strategy
With InCorp Group’s team of expert advisors, we can help you develop, assess and execute a specialised business exit strategy.