For sale: Navigating your first business exit

Key takeaways

• Understanding the exit timeline and process can help you prepare in advance, which is key to maximising business value.
• The sales process typically takes between 12 and 24 months, which is ample time to build a compelling story for prospective buyers.

The timing of a business sale impacts the appeal of the business and ultimately, its value. In this article, we explore key considerations in the lead up to a business exit event, including how to prepare, how long it takes, and what you can do to reduce the timing risk.

What’s the “right” time to sell a business?

It’s a question that’s almost impossible to answer. Every business is different, and there’s no agreed milestone, anniversary or market indicator that suggests it’s time to put up “for sale” signs.

However, understanding the timeline of the sale process can help you take steps to improve the likelihood of a better valuation.

Reflecting on your reasons for selling

Although many business decisions are objective and informed by data, personal feelings undoubtedly play a role. Before you assess current market conditions and other factors that may impact your choice to sell, it’s equally helpful to reflect on your personal reasons for considering a sale.

Have you outgrown the business? Has it outgrown you? Are you just fatigued? Or is this decision part of a wider succession plan?

Understanding the deeper drivers behind your choice to sell can guide you and help you to make a strategic decision around timing, and to prepare yourself mentally for the road to exit.

If you are ready, there are several factors to keep in mind.

Assessing the sales opportunity: is it sudden or strategic?

Exits typically fall into 2 categories: a response to an unexpected offer, or as part of a clear exit strategy.

If the offer is unexpected, it’s important to assess the offer thoughtfully and understand its potential benefits and implications. While some offers may seem opportunistic, others may present genuine opportunities for business growth.

Take your time. It’s best to avoid a rushed response and treat the offer with healthy skepticism. If you are open to the possibility, thank the offering party for their interest and share that you are open to strategic discussion.

Bear in mind that even though the offer may seem sudden, the decision to sell will not be. It can take between 12 and 24 months to conclude the exit, which means you need to consider the business’ strategic roadmap and valuation not only today, but within that timeframe.

Appointing an advisor with a strong understanding of the sector, its potential buyers, and overall market conditions can help in making informed decisions.

Expect the unexpected: Understanding and mitigating risks

Whether responding to an offer or actively seeking to sell, detailed planning is key for a smooth business exit, and calls for active involvement from your accountants, lawyers, bankers, and other advisors early on. It’s also important to communicate your intention with key stakeholder early.

Remember - the more time given to planning, the better the chances of a good outcome.

Planning in advance also allows you to navigate unexpected events that may drastically impact the process, such as an owner falling ill or passing away.

It is essential to prepare a Power of Attorney, which enables a trusted appointee to sign documents on behalf of the owner, to prepare for these scenarios. However, these documents typically do not extend to director-level decisions, and owners will need to look at their company’s articles and shareholder agreements.

There are two types of insurance to consider. Keyman Insurance provides the company with funds if the owner is no longer around, while Shareholder Cross Assurance enables co-shareholders to buy out the owner’s spouse or heirs if something unexpected happens to them.

Take your time: Maximising value throughout the sale process

Preparing two to three years in advance of the actual sale taking place allows you to think about how to maximise the value of the business. Although the actual sales process typically lasts between 3 and 6 months, the entire process from initial offers or indications, through sale preparation, and ultimately to execution, can range from 12 to 24 months.

This is precious time to ensure you understand your buyer(s), practice vendor due diligence, and alter your team and lawyers so that they can prepare. Planning in advance also empowers you to build a compelling exit strategy and equity story, backed by data, that maximises the value of your business to potential buyers.

That story needs to answer questions your buyers might have, such as:

• Have all divestment options and the impact on the valuation of all assets been considered?
• What is the portfolio investment and capital allocation strategy?
• Is there a clear proposition and compelling growth story behind that strategy?
• Have the current and potential value of the portfolio been assessed?
• Will your story resonate with different types of investors or buyers and their requirements?

This is also a useful timeframe to prepare for the possibility that the deal may fall through. Working with a trusted advisor who can offer support and guidance throughout the journey can help navigate tense, disappointing situations.

Final takeaways

Selling a business is equal parts instinct and planning – but it can be daunting the first time around. By understanding the real reasons behind the sell, you set yourself to respond to opportunistic offers, and start the planning process well in advance – and to build a story that helps achieve the best outcomes.