Five Benefits of Having a Business Succession Plan or Exit Strategy
A well-drafted succession plan or an exit strategy is beneficial not only to the company owners but also the stakeholders, employees and the clients that have placed their trust in the company.
Certain unfortunate events such as unavoidable financial crisis, incurable illness or death can lead to the sale of a company. However, over more than 70 percent of SMEs across the country have to shut down because of financial instability. To overcome this problem, the UK government has joined hands with the leading alternative finance firms.
These alternative finance companies not only provide small business loans to businesses but also help them manage their finances effectively. But despite this, there are several other unavoidable factors that can lead to the selling of a perfectly running company.
So, when a business owner is ready to sell the company, it is the business succession plan helps them get a great value on it. Also, having it drafted well in advance helps them prepare for a smooth exit.
For this very purpose, we strongly recommend business owners to think about creating a business succession plan and an exit strategy. When creating these strategies for your company, keep in mind the following five key considerations. These will not only be beneficial to you but will also be beneficial to all the stakeholders of the company.
Five Key Considerations to Have a Business Succession Plan or Exit Strategy
1: Ensure that both you and your company have a clear vision
It is believed that if you want to get the most out of anything, start with the end in mind. In business, start with an exit strategy and then work backward on it.
To draft a well-defined succession plan or an exit strategy requires a clear vision of where you want your business to be in ‘x’ years. Once you know what you want and where you want to be, you can then set personal, professional and company-wide aims that will help you and other partners find a path to what you mean to achieve.
2: Truly know the value of your company
In the majority of the cases, business owners are unaware of the value of their company or end up over-valuing it. When planning an exit strategy, it is important to know the actual value of the company. More importantly, a business owner should know how they can increase this value to achieve personal and business financial goals.
There are several ways to determine the value of the company. No matter what way you use, it is essential that you know your net worth before you finalize the selling of your company.
3: Maximising Your Firm’s Value
The people looking to buy your business will want to make sure that the company will continue making profits after the sale. Additionally, they also need assurance that the star employees, clients, vendors, and other stakeholders will remain in place even if the owners change. Such a risk can be mitigated with proper planning such as having:
- Employment contracts or offering packages that make the star employees stick around
- A diversified client and vendor base
- Documented policies and procedures (along with contingency plans)
4: Growing your firm or maximizing scale
Are you sure your company is of the right size to attract the best audience? While selling your company, you will have to present that you have achieved efficient growth for years without adding excess overhead and have continued to maintain good margins.
Companies usually have a ‘strategic’ size which can be used to attract the highest multiples and value from its potential buyers. However, it is essential to discuss this with your brokers or investment bankers who help you look for possible strategic options to position your company in such a way that it attracts the best buyers.
5: Demonstrating consistent growth in revenue and profits
When buying companies, the buyer usually wants to see that your company has had a consistent growth in its revenues while it has also maintained strong margins. Successful businesses have a well-documented business development plan in place for its entire workforce – to make sure that everyone involved has a vested interest in the company’s growth and success.