Do all business owners think that one day they will exit their businesses? Steve Knowles of Knowles Warwick, our Accountancy Partner in South Yorkshire, ran a training seminar last week to help business owners plan for this.
This is all important for any business owners. It involves many elements, and takes time to plan and do properly. First question, when? When you reach a certain age, when you hit a certain level of profit and thus price, when your team can run the show without you?
You must de-clutter the business. If you run a big car/yacht/cottage then get them out of the business. And preferably no family in the business. If you need to streamline the business or make changes do them now before you look to exit.
Get the profit on an upward trend; a buyer wants to think the future is exciting and they can do it better than you. Pay back your investors, and reduce your overheads if you can. If its a services business try to get some “long term” contracts from customers providing more certainty for a buyer.
Management Buy Out – sell to your management team, make sure they know what their doing first, and have the knowledge, skills and experience
Family – sell/give to family
Liquidate and distribute the proceeds to yourself
Float on AIM/the Stock Exchange, this is an option for the very few
Much the most common route. Get all the money on Day 1- refuse to accept any payment in shares/debt, cash only, otherwise you’re backing that they will do a better job than you. And earn-outs are a tricky-one, buyer does very little due diligence and always chips down the earn-out, avoid them if at all possible.
It’s important to the buyer that you are not needed in the business.
What are you going to do after the sale, without your baby? You need a purpose after you leave, too many go business owners go back into business.
There are many theoretical ways of calculating values of companies but in the end the only question is – What will the buyer pay and what will you (the seller) accept?
Multiples of net profit are the most common measure, for service businesses typically 5 or 6 x net profit, for tech businesses much more like 10-20 x, Google etc are on 50-60x!
A key thing to remember is there are no ethics or morals in exits!
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