The COVID pandemic might have thrown a spanner in the works of many businesses and their future plans, but with some indications that the worst is behind us business owners can start looking ahead again. Many will look to rebuild, but for those considering an exit despite the hit to earnings, the simple Who, What, Where, When, Why, How sequence provides a great context for considering the development of an individual business ownership transition plan:
Who is going to buy my business? Being very specific about the most likely or – better yet – ideal buyer for your business will allow you to prepare and position the asset so that it is at its most appealing to that buyer profile.
What is my ideal outcome? Knowing what you are aiming for means you have a specific goal, a desired outcome from the exit process. Is the maintenance of your legacy important? The wellbeing and security of your employees? What is your after-tax cash in hand expectation? Be specific, be realistic, particularly in light of the recent disruption
Where am I going afterward? Chances are you won’t be remaining with your business for long after you sell, so what’s next? Retirement? If so, where are you going to spend it? Who with? Doing what? “Separation anxiety” is one reason why business owners often hang on too long: they have no idea what they would do post-exit and/or the association with the business is a large part of their identity. Make sure you can cut the umbilical cord without remorse by having a post-exit goal.
When do I want out? How much time are you prepared to commit to the business from this point on? What is your exit horizon, the date upon which you wish to have handed over the keys to the kingdom? Being specific with your timeframe means it is easier to plan what and how much can be done in preparation for transition. If it’s 12 months, you probably need to get onto the market early in the new financial year; if it’s 5 years you have the opportunity to rebuild and potentially transform the business into something that is optimally appealing and at its highest possible value.
Why would my ideal buyer be interested in my business? Private enterprises are often far more valuable to their owners than they would be to potential buyers. By identifying the business’ core assets, identifying the strategic value these assets can add to your ideal buyer makes positioning and communicating the opportunity far easier and more effective. Remember, your business is, at its core, a very valuable asset, but it’s up to you to make sure this value is transferable so that you can realise it in a monetary form.
Finally, How am I going to transact my exit? Are you shooting for a trade sale, IPO, Private Equity consolidation play, retail sale, management buyout? Each option is suitable for different categories of opportunity and links very clearly in with the identification of the ideal buyer. Knowing – or having a good idea of – the transaction type allows you to set pricing expectations, transition requirements and has important inputs into the planning process.
So, a simple framework, but a good way to get thinking about some of the key considerations involved in business ownership transition. For more insights, please visit www.acquisiti.com or email firstname.lastname@example.org for an individual discussion.