Get out while the going is good

 

Like many small businesses, most printers struggle with an exit strategy. They have trouble selling the business when it’s time to get out. The reality is they have left their run too late. It’s no good waiting till things are going badly and you want to get out. That’s no way to get a good sale price. The exit strategy needs to start early.

 

It’s easy to understand how that happens. Business is there to earn a profit and managers will periodically check the numbers against budget to ensure that the business is running according to plan. They gets so caught up in the day-to-day running of the business that they overlook a key part of the strategic planning process: an exit strategy.

Managers need to be not only looking out for opportunities but preparing the business for a possible sale some time down the track. To do this, they need to undertake four steps.

The first is to identify the competitive advantage, and build on it. What does the company do better than anyone else? What unique product or service is it offering? This is important because an acquirer will be willing to pay a premium for that competitive advantage. Competitive advantage needs to be identified, sustained and built up.

Another strategy is to identify three to five potential buyers and work out what they would be looking for in your firm.

It is equally important to make changes now, before the business is up for sale. That means upgrading technology platforms and hiring the best talent around. If in the end you choose not
to sell the business, those steps will put you in a stronger position.

Management experts say the company needs to be looking at the market trends five years out from now and identifying where the business will sit when things are changing. It is important to have a product offering that fulfils a current market need.

The point is this: waiting until you’re ready to sell is too late. The best way of maximising value for the business is to do it well ahead of the sale. The aim is to get the business “investment ready.”

When it comes to the question of what the business is worth, the profit history is only one indicator. The next one, which is just as important, is “future risk” which is an assessment
of the probability that the profit of the business will be maintained or grow. That includes such factors as the dependency of the business on the business owner and sustainability
of competitive advantage. Future risk is tackled in the four steps previously outlined. Get that right, and the price will be maximised.

When the sale is underway, you can increase the value of the firm during the sale process. That means tidying up stock and selling off slow-moving or obsolete items. It also means making sure the plant and equipment are working to maximum efficiency and of course, tidying up debtors, creditors and balance sheet. You don’t want to leave any loose ends for the buyer.

It is also important to remember that an exit strategy is not something that you can finish in half an hour. It takes time to develop and it takes patience. Consultants also recommend that the business owner keeps revisiting it as the business grows. It takes time but it also needs to be done well in advance.

Leon Gettler is a senior business journalist who writes for a range of leading newspapers and journals

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