As a software tech entrepreneur and business owner, it is critical you and your shareholders are in alignment on your exit plan.
You should be preparing your business for sale from the outset. That way, if an opportunity should come along that’s too good to turn down, you are ready to go.
Make the Sale of Your Business Part of Your Strategic Plan
When you set up your business, it’s critical your exit plan is a component of the strategic business plan you create. In this way, you will know exactly where you are heading – Right from the outset.
To use the analogy of driving a car, it’s unlikely you would start driving without a clear idea of where you’re going. You may not know every single twist and turn of the route or even the exact roads you’ll take – But you will certainly have a clear idea of your destination - Otherwise you wouldn’t risk setting off.
In this context, it’s quite obvious that you wouldn’t ever set off in your car without a clear idea of where you’re going – And yet, very often, business owners that we meet, don’t do the same with their own businesses. They have a vague notion that they want to sell in 3-5 years’ time but no solid plan as to how they’ll achieve that.
Plan Your Exit years in Advance
Planning for your exit well in advance of the actual event, gives you options. It allows you to set up processes that will withstand acquirer scrutiny once the sale process is underway. These processes will add demonstrable value to your business when it comes time to sell. From a buyer’s perspective, they reduce risk as well as demonstrating that they can take over the reins of the business with relative ease.
Don’t fall into the trap of thinking you can begin to prepare for your sale just a few months ahead of your desired sale date.
We see this scenario so often it’s painful!
Strategic Decisions Need to be Made from the Outset
Combined with your strategic exit plan, there are decisions that need to be made very early on that will have a positive impact on your eventual sale price. You will also be adding value and making the acquisition and subsequent integration easier and more likely to succeed.
Additionally, there are many elements within an Exit Strategy that will not only drive the value of your business but will also make you perceive your business differently throughout its entire lifecycle. This discerning view of your business will have a positive effect on your ongoing strategic planning – and ultimate value.
It’s never too early to create your exit plan. The more time you devote to planning, the better your outcome will be. In a nutshell: you will add greater value to your business and increase your odds of success when you start planning for sale at least 3-5 years ahead of your target sale date.
A word of warning…
The failure rate of business sales is often estimated as being somewhere between 50% and 90%.
That is a huge failure rate.
To avoid becoming another M&A casualty and adding to these depressing statistics, it’s essential you have a comprehensive and well-considered business plan.
Your plan should include details of how the business will operate effectively without you at its helm. What about your key executives? - How would it affect the business if they were to exit?
What about your company IP and the critical expertise of key personnel?
Which management systems have you put in place to assist the seamless transfer of ownership?
Without these things in place, the business poses a greater risk to the acquirer and, consequently, it is less attractive. It indicates to them that they will need to spend more than just the acquisition price to get things running smoothly.
Sell the future
As we have already stated: to achieve the optimal valuation for your business, you must have a strategic M&A exit plan in place. This should include a vision of how the business will provide the new owner with growth and profit that will increase its value well into the future.
You need to demonstrate to the buyer very clearly, exactly how they can maximise the value and growth of your business, going forward.
After many years of hard work - not just for you, but also for your fellow colleagues and co-founders - you owe it to yourself and to your shareholders not to drop the ball at this critical stage.
Just like a parachute jump, you need to get this right – First time.
Is your Business Poised and Ready for Sale?
Whether your business is ready to be sold and whether the sale price will meet your expectations will not be based on some mythical calculation of multiples of EBITDA. In fact, there are many influencing factors as outlined above.
Be bold, make your plan carefully right from the outset
Exit Like this...
In planning your exit, don’t forget to include your succession planning and business continuity plan. Having both of these in place enables you to seamlessly transfer operational responsibility to the future business managers and away from the CEO and other senior executives, who may also be exiting,
Succession planning also gives you a clear blueprint for your post-sale role - This could mean you take on a more strategic role, focused on educating the next generation of managers and leaders. Having a business continuity plan in place adds another layer of value when selling your business.
And finally, while in the midst of your sale, I’s critical you don’t allow your focus to wander from the business’ daily activities
If you need a mentor who can show you the way, book a confidential conversation with Mark Edwards
Whichever route you decide to take, if you fore-arm yourself with all the above, you will have the best chance of success.