Planning a successful exit

Our Cog:ent event held on the 22nd of January covered the theme “Planning a successful exit”. It was a fitting topic for the concluding workshop of the current series looking at building and developing sustainable and successful businesses.

Participants got some valuable insights from our guest who “had been there and done it” (the founder of a successful sports management company who sold his business to a large player in the sector) and from experts in the legal, banking and accounting fields.

The workshop highlighted the following key questions:

  • Have you prepared your business in the best possible way?
  • Have you prepared yourself for that important transition?
  • Are people around you ready for it?

This blog captures the learning from the workshop and details what each question entails.

Preparing your business

  • Start preparing your exit well in advance. It pays off to plan a long time ahead.
  • Pay experts to conduct a thorough due diligence on your business to identify weaknesses, potential points of contention and inconsistencies. Fix them. A buyer’s advisers will turn your business upside down and ask many probing questions. You may as well be ready for them.
  • Build in good time a strong exit team, with an experienced Finance Director, an accountant, a lawyer and a consultant. The team must work well with you and have developed a high level of trust and understanding of your business. Bringing them in at the last minute or when negotiations have started is a bad idea.
  • Future-proof the business as much as possible: secure longer-term contracts with key clients and suppliers.Tidy your leases. If you are in the professional services sector, and are using associates as part of your business model, have strong contracts in place and key clauses such as “Change of Control”.
  • Develop assets on the balance sheet to make it easy to value the business.
  • Demonstrate growth over a period of time and be clever about it. Show the buyer there is potential for future growth. Be aware of the economic cycle and sell on the up, not at the top.
  • Be open-minded : buyers may come from locations or sectors you had not anticipated. Foreign firms may want to enter your local/national market. “Old-fashioned” companies may want to acquire modern technology.
  • Do not underestimate the level of time and effort required to pursue an exit and how distracting it can be in the daily running of the business. Stay focused on the present while preparing the future.

Preparing yourself emotionally

  • Think carefully about your motivation for exiting. What is the key driver? Is it a desire to be in control of your time and to re-balance life in favour of family, leisure and a more enjoyable lifestyle?  Is it money? Is it to use the proceeds of the sale as capital for future bigger ventures? Is it having the time and means for charitable or social activities?
  • Do not underestimate the “soft” side. Beyond the transactional aspect of the exit deal lies a strong emotional transition. You are often at the heart of your business and that business may often be your raison d’être. Employees, customers and suppliers may have strong connections with you. Untangling yourself from these relationships and the business may be difficult and painful.
  • Enjoy the ride. It could be a stressful experience but it could also be really fun and bring a lot of learning.  It will most likely be life-changing and therefore must be anticipated as such.
  • Pick your moment. It is best to do a deal when there is no pressure to do one. You will get a much better outcome if you can be relaxed about it and leave “pennies” on the table.

Preparing yourself practically

  • What will you do the day after the deal, when emails will stop, the phone won’t ring and your diary will be empty? Don’t think that, post exit, your diary will fill up automatically with meaningful and fulfilling activities. It will not, unless you have planned for it accordingly.
  • Know your next move, professionally and personally. Prepare your next business venture or second career, start new hobbies, decide to have a period of reflection to think in a proactive and purposeful manner about your next challenge. Don’t get caught in a purgatorial zone of regrets and hesitations.
  • Can you afford to exit? Do the math on the level of monthly “pay” you can expect once you have exited. You may no longer have a monthly salary and regular dividends so how you will support your lifestyle without burning your deal money too quickly? However large that amount was, you will need to make it last and invest it wisely.
  • Optimise the tax situation for yourself and people in the business. Again, start that work early enough to reap the most benefits.

Preparing other

  • Take your management team with you. Consider stock options to retain your key staff.
  • Communicate with them and make sure they understand what they will get from the exit and how it will affect them. Get them focused on growing the business. When the time is appropriate, communicate with the rest of the company and highlight what the future holds for them.
  • If the business was started with one or several partners, it is essential to be clear from the beginning on the way forward and preferred exit path. Legal documents underpinning the original agreement must have sufficient flexibility to allow several options or scenarios. It is worth having the tough conversations at the beginning rather than when being approached by a potential buyer.
  • Talk to your family about what the future could be like and what changes may occur. Do not think that they will automatically get it and make a smooth transition.

Exiting your business is kind of easy. Exiting your business in a successful way, on your terms and with the best possible outcome, is not. It is clearly a complex task and it will require a significant amount of physical and emotional energy to reach that objective successfully. Be prepared and have the right people around you to support you in that challenging endeavour.

Should you wish to find out more about what we discussed on the day, the slides of the day are available here (150113 Cogent – planning a successful exit slides only).

If you would like to explore the relevance of this theme to your ambition and your business, then please contact jcfonfreyde@telospartners.com, dhenwood@cvdfk, josh.white@hsbc.com or rgregory@pitmans.com.

We are currently planning the next series of Cog:ent events, so watch this space for more information.