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Preparing yourself and your business for your inevitable exit from that
business, whether by choice or fate, is one of the most neglected aspects we
see in small and medium enterprises.
That being said, we believe an exit strategy is critical not only in
ensuring you achieve the best possible sale price on eventual exit, but also
ensures that you realise the best possible returns from that business while
you’re still around.
But what is an exit strategy? Essentially it is a plan for wrapping up
your continued and essential involvement in a business, and can also be called
succession planning. Depending on the available capacity in the business or
your personal mind space, it is something that could take years to put in place,
so best to start with it as soon as possible.
What are the essential aspects of a succession plan?
- Define your planning window – how soon do you want
With a planning window comes urgency and focus. It
defines whether you will exit at once or in stages, and also defines how
resources should be concentrated in order to formulate the plan and execute on
- Get your accounting and legal frameworks in place
Astute buyers, whether external or internal, will most
probably want three years of accounting records in place and will require full
disclosure around all business dealings when conducting their due diligence in
order to evaluate the commercial potential of the business.
- Write down how things are done in your business
Standard operating procedures need to be documented,
from simple things on how the shop is opened and closed on a daily basis, all
the way through to how you can ensure that each and every client has the same
service experience when dealing with your business. Templates for repeating
tasks and formal job descriptions / detailed role clarifications for employees
also form part of this aspect.
- Remove yourself from the equation
You will realise the best possible sale price on exit
from the business if it can thrive without you. If you have staff, give them
the training and authority they require and delegate as far as possible.
- Get a guideline valuation of your business
A professional opinion on the value of your business
tends to manage not only your expectation of your eventual proceeds from an
exit but also equips you with the requisite knowledge to ensure you can
maximise the valuation of the business.
- Work on your elevator pitch
Present the story of how you became involved in the
business, the journey that you had and why you want to exit, as well as the
future potential in the business.
Use the numbers as corroborating evidence and
incorporate external facts and statistics to support your view on future
The best potential outcome of this succession plan might even be for you
to remain involved, but then having a more profitable and efficient business –
one where you don’t need to be there every day.
And should you indeed exit, you will be able to realise a better price
and increase the chances of your legacy being continued in the form of a
successful and sustainable business.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)