The decision to exit a business is one of the most significant moves you can make. The exit path refers to the process for a shareholder or business owner to sell or reduce their stake in a company, realising their ownership’s value.

There are many ways to achieve this, but a successful exit is usually where the most value can be realised in a reasonable period of time, often via a ‘trade sale’.

By planning and preparing for the exit path, you’ll have the opportunity to:

• Increase the Chance of Success: Enhancing the likelihood of attracting or finding the best acquirer and completing the transaction process smoothly.

• Maximise Potential Exit Value: Optimising the timing, shaping the narrative and running a competitive process provides the opportunity to negotiate from a position of strength.

• Minimises Risks: Identifying and mitigating potential deal-breakers or discount factors early on that could impact the exit process.

The exit path can be broken down into two stages and five key steps:

Steps and timeline

Stage 1: Exit Plan & Prepare

1. Informed and Aligned: Ensure key decision-makers are informed, aligned and setup for success

2. Exit plan: Agree on outcomes, put together the exit plan and review ownership structure

3. Exit preparation: Work through the exit plan with a focus on value enhancement and risk mitigation, material creation and due diligence preparation, reviewing and deciding on next steps

Stage 2: Exit Process Management

4. Go to market: Initiating contact with potential buyers, gauging interest and managing relationships to create competitive tension

5. Complete: Working through due diligence, contract finalisation, closing conditions and beginning the integration or transition

A typical competitive process for an exit takes around 6 to 9 months. To take advantage of value enhancement opportunities, it often makes sense to start planning 12-24 months before starting the process.

At Clear Value, we categorise exits into two main types: A first-class exit and a baseline exit when determining exit outcomes. Here are the differences:

• A first-class exit is the sale of your company at a very high value, generally beating the expectations of the company’s owners. It doesn't always mean selling at the maximum possible value, but rather takes into account the overall outcome for the company, shareholders and employees — including the creation of growth opportunities and a smooth and successful transition to the new owners.

• A baseline exit is the sale of your business at the minimum acceptable value that's agreed upon by the company’s owners. It's the minimum threshold where an exit is preferred over not selling at all. This exit might not be 'first-class', but it does mean that after it's completed, you can still walk away without second-guessing yourself on whether it was the right decision.

At the core of this is the valuation of the business. There are two main approaches to consider:

• Stand-Alone Value: This is usually based on the company's ability to generate cash flows, both now and over the long term. This is what we refer to as the company's "stand-alone value" or “financial value”.

• Strategic Value: Sometimes a company might have specific assets that, when under the control of a different owner, could significantly elevate its value beyond just cash flows. This could be a unique product or an exclusive distribution network, contributing to what's known as the company's "strategic value."

Valuations for these approaches can be:

• At Market: The valuation is in line with the current market price or valuation of similar companies in the marketplace.

• Premium: The valuation is higher than the current market price or valuation, often due to perceived strategic value, unique assets, or expected synergies.

• Discount: The valuation is lower than the current market price or valuation, possibly due to perceived risks, uncertainties, or unfavourable conditions related to the company.

Planning and preparation can make the difference between a baseline exit and a first-class exit, helping you achieve your financial and personal goals while leaving your business in capable hands.

As you consider preparing for exit, it usually makes sense to focus on building a profitable, scalable business with a strong management team and a unique competitive advantage.

By starting the planning and preparation process early, it can help set you up to maximise value, minimise risk and increase your chance of success for a first-class exit. It can also help to ensure a smooth transition post-exit.

Early preparation can help to:

• Address any potential roadblocks or discount factors on the exit path

• Allow you to take advantage of value enhancement strategies

• Be deliberate about choosing the ideal time to exit to increase competitive tension and negotiate from a position of strength

Additional benefits include identifying your best potential acquirers, developing key relationships early and being prepared for unsolicited or early offers from buyers.

By focusing on building a profitable, scalable business with a strong management team and a competitive edge, you'll be well-positioned for a first-class exit when the time comes.

Some considerations to prepare for exit:

• Answering Important Questions: When contemplating selling your business, having an exit plan helps answer key questions such as:

  • What is my business worth? Understanding the valuation of your business based on market trends and comparable sales.

  • Who is my business most valuable to? Identifying the potential buyers who see the most value in your business.

  • How much do I need from the sale? Determining the amount you need to meet your personal and financial goals.

• Identify the Best Buyers: Knowing which buyers are the best fit and what they value can greatly enhance your exit value. Determine whether strategic or financial buyers are best suited for your business and identify specific companies or firms likely to be interested can help you focus and prepare effectively.

• Help de-risk Your Business: A well-prepared exit strategy includes plans to mitigate risks that could deter potential buyers. This involves identifying and addressing any vulnerabilities in your business operations, finances, or legal structure.

• Build absolute alignment: with your shareholders and senior leaders with a clear plan to de-risk the business with milestones and

• Know the ideal time: choose the timing that is going to work best for you to create peak negotiating leverage, considering your business and understand the market dynamics

• Be Ready for Offers: Opportunities can arise unexpectedly. By having a clear exit strategy, and having considered your personal and company circumstances and requirements, you can confidently assess and respond to offers when they come, ensuring you're not caught off guard.

• Ensuring Financial Readiness: Buyers will analyse your financials. Ensure your financial statements are structured in a way that buyers expect will instil confidence and smooth the due diligence process, increasing your likelihood for completing an exit.

• Preparing for Due Diligence: Preparing for due diligence early can help uncover and address any potential issues before buyers do. This approach can prevent deal disruptions and strengthen your negotiating position.

• Proper Documentation: Documenting the important aspects of your business, including legal, operational, and human resources will make it easier to transition your business to new ownership.

• Engage Your Management Team: Involve directors and senior leaders in exit planning to ensure a smooth transition. A strong management team that can operate independently of the founder adds value and can reduce the perceived risk for buyers.

• Implement Retention and Succession Plans: Retain key employees through the transition period with effective retention plans, and establish a clear succession plan to demonstrate continuity and stability to potential buyers.

• Scalability and Competitive Edge: Buyers are attracted to businesses that are scalable and have a competitive advantage. Focus on building systems that allow for growth and maintaining a unique edge that is not easily replicated by competitors.

• Create a strong narrative: ensure you’ve got the right positioning to maximise value and create competitive tension

• Enhance Value: Remove roadblocks, minimise discount factors, and enhance premium factors to increase your business’s appeal.

• Exit plan: Creating a detailed project plan for the key activities relating to exit. Ensure all necessary steps are taken to prepare your business for sale and there are clearly define areas of responsibility.

Selling your company is a major decision that shouldn't be rushed. It's the result of all the years (or even decades) of hard work, sacrifices, and dedication you've put into building your business.

When thinking about the future of your company, it's important to consider four key factors:

1. Your Goals (Personal, Financial, Business)

2. Internal Factors (Emotions, Business Performance)

3. External Factors (Timing and Competition)

4. Your Business Value and Exit Options

While we can help you with external factors, business value, and exit options, only you can figure out your goals and internal factors.

The choice to sell your business isn't a simple one or based on a checklist. Instead, it should be made carefully, considering all factors and balancing facts and emotions with logic and intuition.

These four factors are a good starting point when thinking about selling your business.

Your Goals

When you're thinking about selling your company, the first step is to be clear on your goals. This will help you put all the other factors into perspective and make sure they line up with what you really want in the long run. It's important to be honest with yourself about your long-term goals so you don't make a rushed decision that you might regret later.

Ask yourself: "Would selling my business actually help me achieve my long-term goals?"

• What are my long-term goals?

• How would selling my business help me reach those goals?

• Am I aiming for financial independence, a career change, or something else?

If your business is holding you back from achieving your goals, then selling might be the best path forward. However, if selling is the key to realising your goals then it’s worth investing extra time and effort into planning your exit to make sure it meets your objectives.

If your goal is financial independence, an exit can be a life-changing event. It’s essential to get a realistic valuation of your business, create a plan to increase its value and prepare for any personal financial and tax implications. If starting a new venture is your goal, think carefully about the opportunity cost of staying in your current business, versus pursuing a new one.

Consider if selling your business would make you happier. Would it create financial independence? Would it give you the freedom to pursue other opportunities? On the other hand, reflect honestly on whether keeping and growing your business could lead to greater ultimate success, fulfilment and happiness.

• Would selling my business make me happier?

  • Would an exit make me happier through financial independence?

  • Would I be happier with the additional time and freedom to explore other opportunities in life?

  • Could I pursue other business ventures with the time and resources from a sale?

• Will keeping my business bring me more happiness than if I sold?

  • Do I find satisfaction in my work and the impact my business makes?

  • Am I continuing to be excited about the potential for growth and new opportunities, despite the obstacles?

  • Are there strategies I can implement to reduce stress/burnout?

• Is my business performing at a level that will help me achieve my future goals?

  • Is my business generating enough revenue and profit to meet my personal and professional goals with clear, achievable milestones that align with my long-term aspirations?

  • Is the business stable and resilient enough to weather potential challenges and economic fluctuations?

  • Do I have a strong, capable team in place to support the continued growth and success of the business?

External Factors

The best way to get a sense of your business’s valuation is by keeping on top of similar transactions in your industry, and their valuation multiples. This will set you up and help you get ready for any potential sales ahead of the exit event.

• What is my business worth?

  • Have I recently had my business valued?

  • Am I aware of current industry multiples?

  • What changes could increase my business's value?

By understanding your business’s worth and the potential improvements to increase that value, you’re also better prepared for any unexpected inbound offers.

• What are my exit options?

  • Who are the likely buyers that are most interested in my business?

  • What are the benefits and risks involved with selling to different buyer types? (E.g. strategic, private equity, growth equity)

Identifying your exit options will help you create the best exit strategy by considering all pathways.

• Is the value of my business increasing or decreasing?

  • How can I accelerate or increase my value?

  • What are some discount factors which I need to address?

Evaluate if waiting and selling later is more beneficial once your business grows to a certain level of scale, or if it’s better to sell now rather than holding onto a low-growth business.

• Is my business ready for exit?

  • Are there any roadblocks and discount factors that need to be addressed?

  • What is my potential exit value if I address these issues?

Preparing your business will make it more attractive to buyer and can increase its value.

For a first-class exit you need to ensure:

• Absolute alignment: with shareholders & leadership on what a Great Outcome is

• A Strong narrative: you’ve got the right positioning and story, so you can maximise value

• The Best acquirers: you’ve got a broad buyer universe with the best acquirers lined up, and you’ve built relationships early

• Competitive tension: you’ve got multiple interested parties, so you can negotiate from a position of strength

• Ideal time: you’ve chosen the right time to exit, considering the market, the industry, buyers and your business.

Our role as exit experts