You have started a company and have grown the company and now you’re starting to think what’s next. Is your company’s industry changing and you’re not certain of what the future holds? Do you want to spend more time with your family but can’t find the time to spend with family and run the business? As owner, you should always be thinking about your exit. Whatever the reason, business owners should plan for an ultimate “exit” from your business enterprise. In doing so, consider the following keys to growing and building value for your enterprise.
What to consider when crafting a business exit strategy:
Leadership: Hire or develop a C-Suite or board of directors with experience in value-creation. The team should be directly involved in making decisions to achieve a “successful” sale. The team is accountable for all outcomes. The leadership team should demonstrate competence in:
- Developing and implementing business strategy and financial structure
- Developing management talent and building productive teams
- Growing profitable sales
- Linking management performance to organizational goals
- Managing crisis, transition, and rebuilding processes
Strategy: An effective strategy is key to enhancing enterprise value. You must establish a credible vision, distill the vision through the organization and implement the vision. Focus the company’s strategy on profitable products/services, profitable markets/segments and developing and incenting the organization’s human resources.
Growth: The value of the company increases substantially by demonstrating the growth in profitable sales. A company can increase sales by selling new products or services to existing customers or selling existing products or services to new customers. Organizations should tailor their growth strategy to the market and adapt their products/services to changing market conditions.
Reasonable Capital Structure: Create reasons for buyers to buy your company. A sound strategy with a viable market, efficient delivery and production, coupled with a dynamic management team, will attract potential buyers. As important as having access to cash to finance working capital is making certain that cash resources are used for appropriately-structured debt obligations. Establish relationships with secured and unsecured lenders and make an effort to be transparent with all stakeholders.
Systems and Processes: The development and implementation of processes and systems in the business to control the day-to-day operations allows management the available time to focus on building strategic value. Many managers waste time on tasks where results are essentially the same. Focus on the important things: sales, cost of sales and cash, among others. Processes help layout expectations and create a de-facto delegation of authority. Also, highly functioning systems and processes bode well for value from potential buyers. Essentially, great systems allow for new owners to focus on value rather than spending time on “fixing.”
Value Resources: Invest in, develop and leverage resources, especially human resources. Frequently, potential buyers value the target company’s personnel the most. As owner, you invest appropriate financial resources in developing both senior and middle management. After all, they are the people that execute and implement the strategy.
Exit: “Cash is King.” Running a business is a risky proposition and the longer you hold on to that business the more chance you risk loss or failure. As such, anytime an opportunity arises for a liquidity event, you should seriously consider it.
Planning how to exit your business and implementing the strategies listed above can help assure that you are getting the best possible value for your business.
EMAGroup advises companies in transition, focusing on Special Situations, Capital Solutions, Enterprise Performance Improvement, and Insolvency Strategies to create value-driven solutions. For more information, visit: https://www.ema-group.com.
