Time to leave: how to plan and execute your exit strategy

Many founders start their business with a view to leaving it. How can you maximise value and when should you leave? Swoop’s ‘Exit-perts’ give top tips for business owners

What time is the right time to exit the business you have built up, possibly over many years? How can you get the best price for it? And what will make it attractive to buyers?

Business founders are so busy building their business they may not have thought about how to leave. Others may find it impossible to part from something which has become a part of their identity. Still, others will have been planning for their day of departure before they so much as named the company. 

The truth is that there are no ‘right’ answers for the questions that founders have as everyone will be different. The best approach is to ask the right questions: have an idea of what you wish to achieve in mind, listen to advice from people you trust and ultimately make your own decision based on the best information you can gather. 

Andrea Reynolds, Founder and CEO at Swoop, together with Mark Robinson, Senior Funding Manager and Exit Strategist at Swoop put their heads together to answer some of the big questions that a business owner will have about planning for an exit from the company they have built. 

How early should founders start planning their exit?

It’s never too early to start planning, though for practical reasons you will likely be more focused on getting your business up and running than you will be about getting out of it again. 

That said, how and when you exit may be part of your early stages planning. You may elect to have a strict time limit (“Come what may, I will sell after five years trading”) or you may have a financial landmark in place (“When the company is worth £10m I will look to sell”).

An approach that combines the two is usually the most appropriate, building a plan that grows the company to the size you would like within a time limit. 

Your other consideration may be around your attitude towards the business: Is this a stepping stone or a legacy? In other words, do you see this being one stop on your path to bigger things or can you see this becoming a family firm that you will pass on to the next generation? (In which case, ask: are your children aware, and do they want it?)

The important thing is to ensure that you have the right people around you to achieve the plan you set out with. 

How does exit planning affect how you run a business?

An exit plan will encourage your strategic thinking across the whole operation, whether that means investing in new equipment or deciding on who you are going to hire. 

If you are planning on handing over the keys one day, you (and the new owner) will want to see that the finances are in good order and that there are no surprises lurking. It is important that you are able to demonstrate that you have found responsible sources of funding for your business so that an incoming owner can see that your business has been built responsibly and legitimately. 

Most businesses are typically valued in one of three ways: revenue multiple, earnings (typically EBITDA) multiple or asset value. This is where sector-specific knowledge comes in useful; if you know how companies in your sector are valued, you will be able to make better decisions on the best course to achieve the maximum value for your business. For example, if a potential buyer is only interested in the earnings of your company, you may not wish to buy up expensive equipment or property unless doing so will have a direct and immediate positive impact on your earnings. 

When should you plan to leave?

As stated before, have a clear goal in mind. If you miss the window in which you had planned to leave, you may find yourself stuck trying to recapture an opportunity that no longer exists and find yourself staying longer than intended. 

That said, being able to change plans if circumstances change could be a huge benefit, but make sure you are doing it for the right reasons: many business owners will have felt that mid-pandemic is not a good time to sell, but a period of the economy bouncing back may well prompt founders to think of bringing their exit plans out of hibernation. 

What makes your business more attractive to potential buyers?

Buyers will be looking for a number of things before they will buy a business. How many of these can you honestly say (and demonstrate to a buyer) that your business has?

• A management team in place that will be staying with the business post transaction
• An engaged workforce 
• Knowledge of and preeminence in your market, the KPI’s they work to and how you measure up
• Repeat clients / income
• Diverse client base that means you are not reliant on one source of income
• A stable cost base that will make projecting future profits easier for a buyer 
• Lack of reliance on any single supplier 
• Clear financials. Having to perform complex calculations to work out what the business actually makes, will discourage many buyers and potentially impact the offers you do receive

In other words, a healthy, sustainable and profitable business will bring the exiting founder a better payday than one that is suffering a lack on any of these fronts. Any incoming owner will want to make changes, but the more elements from the list above that you have working in your favour, the better. 

What if you miss hitting any of your targets?

If you want the gods to really laugh, you show them your business plan. Missing a target is less important than understanding why you missed it. You will already have paid the price so take the lesson as it will help your business.

(Incidentally, nobody ever thinks of an overshot target as a ‘miss’ but they spend a lot less time analysing it.)

Remember too that you can only change the things over which you have control, so look at the levers you can pull and try to mitigate the effects of those you can’t. Often, you can save future heartache by looking again at KPIs, checking your processes and making adjustments as necessary. 

What are the best first steps for a founder who wants to exit?

In summary, if you are thinking about exiting your business, you need to make sure you have the following: 

• A plan. Work this out with your advisors, the people you trust, family, friends and anyone whose experience you value. Ultimately, however, the decision on when to go and when to sign the deal are up to you.  
• Have a support network in place. Selling up can be stressful and sometimes more emotional than you have bargained for. So support – career, financial and psychological – has a strong role to play.  
• Find the right advisors, not just the ones that say yes all the time. A little push back and a checking of assumptions can make a big difference. 
• Think about who you are selling to: is it a trade sale, is it an equity investor, is it your management team? There are more potential buyer pools, but knowing what your buyer wants is the first rule of making a successful sale that leaves all parties happy. 
  
  

Swoop helps businesses achieve maximum growth through grants, finance and equity as well as a range of money-saving deals across products such as bank accounts, FX and energy. To register, visit www.swoopfunding.com