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Exploring exit strategies is a critical process that CEOs should approach with careful consideration. Selling a business is often the most significant transaction a business owner will undertake, making it crucial to find the right acquirer, at the right time, and for the best price. The potential financial and personal implications of a sale are immense, leading to understandable anxiety during this process. This guide aims to provide CEOs with a roadmap to achieve a seamless and successful exit.
1. Begin with a Strategic Plan
Creating a plan for the future is essential when preparing for an exit. One crucial aspect to consider is your involvement in the business post-transaction.
Reflect on whether you are willing to relinquish control of the company you have built to an outsider. This decision will affect how you position your company and which types of buyers you target. Private equity firms typically require management teams to stay on board, while strategic acquirers can easily bring in their own executives. It’s important to be ready to leave if that is your preference, as ambivalence may hinder the exit planning process. Remember that there is life beyond the business, and understanding your personal and business goals is vital.
To prepare yourself for exit, think about what you will spend your time doing after you’ve exited the business, and be realistic. Whatever it may be, crafting a plan will help make exiting your business easier.
“Will you be able to handle ceding control of the company you’ve built to an outsider?”
“Although business owners intellectually understand their identity is not their business, it can be hard to separate the emotional attachment.”
2. Identify the Right Buyer
Identifying the right buyer is another key step in the exit process. Differentiating between strategic and financial buyers and understanding their decision-making processes can help you determine the best fit for your situation. Consider what your ideal buyer would look like and envision your life without the business. Clarify your goals and what you need to commit or let go of to achieve them. Whether seeking a legacy or a financial return, aligning personal and financial outcomes will influence the type of acquirer that fits best.
3. Clarify Motivations for Exiting
Knowing why you want to leave is also important. Understand your reasons for wanting to pass the baton, whether it’s personal circumstances, the need for liquidity, investment opportunities, or other factors. Timing-wise, it’s advisable to consider an exit when things are going well for the organization, even though it may not be the most enjoyable time for the owner. Irreconcilable differences among co-owners, lack of heirs, health issues, or underperformance compared to desired returns can also influence the decision to exit.
“It’s not always about the money.”
IDENTIFY YOUR GOALS |
| Your idea of success may depend on current industry multiples or other market factors outside of the owner’s control. But in some cases, ownership and the business’s executives can play an instrumental role in increasing the probability of success, by a) valuing their company at or near a realistic number b) employing a diligent and thorough process in marketing the company |
| Several exogenous factors that may impact your planning:
» Overall performance of the global, national, regional and local economy » Idiosyncratic risks/outlook associated with that industry » Individual company performance relative to overall market performance » Individual company performance relative to its competitors » Socio-political and regulatory environment |
4. Get Support at Home
Obtaining support at home is crucial during the exit process. Communicate openly with your family about the challenges and duration of the process. Having a support system can make a significant difference in navigating through this period successfully. Problems at home can impact your work, and vice versa, so it’s important to find a balance and integrate both aspects of life.
5. Build a Strong Deal Team
This team typically consists of finance professionals such as accountants, CFOs, and wealth managers, legal representation, an M&A advisor, and a board of advisors or directors. The selection of these professionals should align with your company’s objectives for the transaction and their specific responsibilities.
In addition to the traditional members of the deal team, consider engaging an executive coach. An executive coach plays a vital role in helping sellers manage multiple demands and roles. Unlike other professionals involved, a coach provides an objective perspective and acts as a sounding board for business owners, enabling them to make better decisions in confusing circumstances. A coach can provide feedback that others may shy away from sharing, offering constructive criticism, and holding the owner accountable. By revealing the challenges they face, business owners can benefit from advice that is unbiased and focused on personal growth.
Business owners often wear a mask when interacting with employees, colleagues, and even family. However, when talking to a coach, they can remove this mask and discuss the true challenges they are experiencing. A coach provides agenda-free advice, helping individuals reach the next level without judgment.
“Make sure you have a good deal team”
The Three P’s
“The deal will be 10-100x more difficult than you anticipate”
During a transaction, it is crucial to focus on three key elements: purpose, people, and processes. Roger Blackstock emphasizes the need for a clear purpose and vision that is understood by everyone involved. It is essential to have the right people in place and replace those who do not align with the goals of the transaction. Defined processes are necessary for proper execution.
Kirk Dando adds that having hope alone is not sufficient; a strategy with goals and a management framework is required. Regular reviews of the framework are vital, with a monthly or quarterly cadence. It is important for everyone involved to be dedicated to the strategy to navigate through transitions successfully.
Having a competent team supporting the deal and day-to-day business needs is crucial. Stressful times may lead to overlooking important factors, so staying strong throughout the process is necessary.
Additionally, eight tips are provided for successful transactions:
- Timing is critical, as market conditions often dictate the best time to sell.
- Keep the customer at the core, ensuring value is consistently added.
- Don’t take your eye off the ball. CEOs should allocate at least 50% of their time for the deal to avoid adverse consequences.
- The structure is important, with regular check-ins and delegation to management teams.
- Stay away from secrets Transparency is advised when sharing information about the transaction with employees.
- No deal and no promise is done until there’s actually ink on the paper. Avoid counting on a deal before it is finalized, as complications can still arise.
- Temper your expectations. Realistic expectations regarding valuation should be maintained, considering the true worth of the business.
- Look your buyer in the eye. Direct communication between the seller and buyer is key for establishing trust and resolving concerns
Achieving a successful business exit requires careful planning, strategic considerations, and a supportive network. CEOs must align personal and business goals while navigating the complexities of finding the right buyer. By clarifying motivations for exiting and establishing a strong support system, CEOs can confidently steer their companies toward a prosperous transition. With the guidance provided in this roadmap, CEOs will be well-equipped to embrace the opportunities that lie beyond the exit and embark on new ventures.
