How to exit a business and win!

Xero's guest blogger Claire Cilliers looks at why the term ‘succession and exit’ is now a lot more relevant as Baby Boomers start to age.

Google ‘Baby Boomers’ and you’ll soon realise that this is the largest economically active cohort across the globe. In the USA, Baby Boomers make up half the spending power across the country. With greater spending power, and having worked for most of their lives, this group have their sights set on retirement as their reward for a life spent building their asset base. In short they’re looking to slow down and take time to smell the roses.

The broader challenge is the sheer number of Baby Boomers. With improved health and lifestyle the average lifespan of an individual in the developed world has increased dramatically. Undoubtedly a longer life is a positive consequence, though an unintended consequence of more people living longer is that more people want to do the same thing! For example, when more people want to sell their business, the market is flooded, prices come down and the buyer dictates.

Also consider the situation the potential buyers are in. The next generation – Generation X – are fewer in number and on average juggling a mortgage, car payments, credit cards, children etc. So with fewer people, who have less capital, and the current global economic environment, the chances of being able to access any real equity (when selling a business) are slimmer than most would anticipate.

Thinking ahead

Succession and exit are very real threats to any business. Left unchecked, business owners may very well find themselves owning something into which they have invested their blood, sweat and tears but there aren’t many options to release their equity. This is why the same level of planning and consideration that goes into starting, growing and building a business, needs to go into figuring out the best possible way to exit. The analogy of emergency rescuers comes to mind, “Know your way in, but also know your way out!”

There is no one simple answer to the succession and exit strategy or plan. As diverse as businesses are, so too can the plans for exit be. But there is one similarity though: it takes time… and when I say time, I mean a few years to ensure the right people, processes, technology and capital are in place.

It also takes a team to support you through the process. As the one who is exiting, you need to ensure your accountant, lawyer and insurance broker are all working to the same plan. It may mean having frank and honest discussions with your business advisors – if possible, get them into the same room at the same time. This way your money will be well spent, with all actions aligned and geared towards the end goal.

Here’s what you need to consider:

1. Do you have a current, documented business plan? Yes, you need one again! Consider this, if you were going to purchase a business, wouldn’t you want to know where it was going… when, where and how?

2. When do you want to be “free” of your business? Is it in two years, five years, ten years? Ensuring the right people are in place and/or selling your business can take far longer than you anticipate and the transaction itself may take place over a few years.

3. Do you want to leave some equity in your business? Are you prepared to do this if this would aid the sale or transition to new owners… and how much would you leave in?

4. Have you noted down all the jobs/roles that you play? You may not realise this, but you fulfill a number of roles and replacing you may take more than one person.

5. What do you believe the value of your business to be? Like a house, your perception and what the market is willing to pay can be considerably different. Have you even got an idea? Start making a note of what other similar businesses have sold for – why were they sold at that specific value and how does your business differ.

Note that while you may want to release your equity, those taking on the business will want to realise and justify how they will grow their wealth.

We’re keen to hear your thoughts on preparing to exit a business, be it a lifestyle change or something completely different.

Claire Cilliers is a Principle Consultant with Hipah Consulting where she specialises in Succession and Exit Strategy and Planning. She has consulted internationally, dealing with small and medium enterprises through to corporates with multiple listings.

Published on Xero Blog in Business on 25 November 2011 by Claire Cilliers