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Accountants and business advisors
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Exit Strategies - What you need to consider
The most dangerous thing about exit strategies is not thinking about them. A business owner who decides he’d like to sell now is like a man about to jump from a plane; he’d be a lot better off if he’d thought to bring a parachute beforehand. And with due diligence examining 160 aspects of the company, it can seem like a very long way down indeed.
First impressions: They really do count. If your paint’s peeling and your carpet’s been around longer than Keith Richards, who’s going to look any further? Make sure your premises, literature and website all sparkle. Make sure you’re staff are dressed appropriately and make sure phones are always answered in a clear and helpful way.
Sales and Profit: Anyone can boost margins for a year. You just have to cut mercilessly. But if you slash staff and budgets for, say, R&D, you’ll be dooming yourself to crashing later. Aim for three years of good profits to demonstrate that the business is sound.
Company structure: Are you using personal assets in the business – for example, do you personally own the premises? Get them on the company balance sheet now! Is the business stable – or are you frantically going into new markets? That’s not the right time to sell. A buyer wants a clean slate, so he can make his own mark on the business.
Staff: “Are there any tribunals coming up?” That will be one of your buyer’s first questions. So get tribunals out of the way. You may just want to pay staff off, to get them off your back. After all, tribunals can go for months.
Then there’s HR records – are all your contracts of employment up-to-date? Do all employees have copies of your company handbook, including the disciplinary procedure? Do you have a policy on drug abuse? How about discrimination? Is your health and safety policy up-to-date? Have you done risk assessments on your machinery, supplies and processes? You have to make sure staff carry out their duty in a safe way. What about qualifications – does your forklift operator have a forklift licence?
Next, how’s your staff turnover – can it be reduced? And are your employees trained and motivated? The buyer will want to talk to them. Their attitude, positive or negative, will have a huge impact.
Resolving disputes: Staff are only part of the story. Do you have a land dispute with a neighbour? A complaint from a customer? How about a tiff with a supplier? If you have debts that have been on your ledger for over six months, be realistic. Either chase them hard (and chase them now!) or write them off.
Accounting: Are all your taxes paid and returns properly filed? Are your
audited accounts filed at Companies House? Are there any accounting irregularities on your books? Not that you’d do this, but any business conducted off-ledger will reduce your valuation.
Legal: Is all your software licensed? Has your soil been checked for contamination? Are your trade names and logos registered? Do you have patents and licences for the products you sell? Be careful if you sell a product “exclusively”, - you need to protect that right.
One more note of caution: with all this planning to do, you might be tempted to seek advice from your usual support network of colleagues, friends and fellow entrepreneurs. Don’t! Only discuss these matters with your advisers – accountants, lawyers and corporate finance team, if you’ve got one. Talking to the wrong people will send confusing messages and could damage your company.
Graham Watkins is the author of Exit Strategy: The Practical Guide to Selling your Business
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