The global number of businesses bought and sold in 2014 was 11% higher than the year before. As entrepreneurs that started their companies in the boom of the 70s and 80s are starting to retire, this number is set to grow even more in 2015 in 2016.
Does that mean that it is difficult to sell your business in this period? Probably not. The amount of capital in the form of equity is rising and there are plenty of parties that are acquiring. However, the competition is a little higher and, to get the best deal, it is better to prepare for it.
So how do you achieve a successful exit? and what does it mean anyway?
An exit is successful when you manage to show the right value for what you have done — reflected in your company. This does not mean oversell, this means make the company and present it at it’s full potential. Indeed, if you don’t do this, you are underselling, allowing a newcomer to take over the company, make those little changes and maybe even resell it straight away.
So there are actions that can be taken beforehand that can prepare the company to the sale and can allow you to bring it to the highest potential. Of course, the longer you prepare for an exit, the more actions you will be able to undertake. [That is why you should think about exit from the very beginning… but that is for another post ] In general, there are shorter term actions that can be taken even some months in advance.
The main thing, which is sometimes overlooked, is to create a company that can function and succeed even when you are taken out of the picture. This is easier said than done, and a lot of entrepreneurs underestimate how much of the company success is tied to them personally. They sometimes hold all the relationships, they have created a reputation of trustworthiness for themselves (that could not be reflected on the company as a whole), and sometimes they just do most of the jobs that nobody else can do. If you are about to remove yourself from the company, it is better to iron out these things first. Make sure to pass your connections to somebody who is going to stay, make sure that your knowledge is transferred, and put people in a position to thrive in doing what you did, maybe even more than yourself.
Buyers of your company will not know everything you know about your business. To attract the best ones and to properly present the maximum value of your company, a simple action that you can undertake is invest in your brand. Again, if you remove yourself as a founder, and the company becomes a stand-alone, it will not be able to rely on your reputation. It has to have a stand-alone reputation, and that is it’s brand.
Quick actions that can be taken are, for example, renaming it if the name was tied with yours, start communicating at company level instead of personal level, like ‘We at company X do this’ instead of ‘I do this’ and start reinforcing this separation within the company.
Do you know how most of the Private Equity Funds make their money? They buy into companies, take actions to improve efficiency and then sell their participation at a premium, usually a hefty premium.
So why not take some lessons from them and take those actions before somebody else takes them? Of course, efficiency can never be 100%, but sometimes, especially as a business matures, certain things get looked over and grow into easy-to-eliminate inefficiencies. Slow computers, moving the factory closer to the marketing office, replacing some costly but outdated machinery; These things are usually delayed actions because they do not bring immediate revenues and they are costly. However, they are going to bring the company closer to it’s full potential, thus increasing the likelihood of a potential exit.
All these actions are fine, and intuitively they lead to a better exit outcome. They are also good general practices if you are just running the company and you have not thought about exits so far. However, it is much easier to improve things if you can track this improvement.
Generally, especially in financial terms, you can look at indicators for efficiency. Do marketing surveys for branding and give different titles to your key employees to make sure that the company can function without you. But how do you know if these actions are ‘working’?
All these actions are going to reflect on one and only metric, how much your company is worth. All these actions are going to increase how much the company is worth and thus bring the transaction value closer to its full potential. So it’s important to keep track of it, and make sure that these actions are actually reflected in a value increase. You can use different ways to track company value, you can create your own spreadsheet, talk to consultants, or (of course) try out Equidam.
Remember, the best way to make the exit more successful is to make the company more successful and these are just some of the actions that can be undertaken to grow your value, bring it closer to its full potential, and get an exit as successful as possible for all the hard work that went into building the company.
Originally published at www.equidam.com on May 15, 2015.