As the UK economic recovery appears to have taken hold in 2015 & 2016, as well as the problem of overtrading and running out of cash, owner manager are looking at their exit options. The vast majority of owner managers have never exited a business before, and many generalist business brokers exploit this with promises of high multiples or valuations and many potential interested parties.
I also wrote an article earlier this year stating why now is a great time to sell your business, read this now
However, the reality for most UK businesses (or read ‘owner managed SMEs’) is that at the time they want to sell, there may not be many buyers or acquires around at the right stage. As most owner managers are actively involved in ‘their business’ , without a great deal of forward planning, they will have to remain involved in the business long beyond the sold date. Even when he or she gives up day to day control, they will almost certainly be subject to an earn-out or deferred consideration.
Also, they will also face being an employee with a boss rather than an owner manager themselves. This means that for many exit strategies, management succession is the top of the priority list, i.e. you must invest early in a strong management team. This is no bad thing, because having strong management will drive growth, and maybe even make them possible buyers as well.
CMC Partner have produced a 10 step checklist for improving your chances of a successful exit, it is available to download here.
Also to get the best price, an owner manager needs to ensure a maximum valuation for the on-going business. The business valuation is dependent on many things, not least the likelihood of future cash flows. Recurring income is the star item, as long as there is growth potential within it. Whilst having recurring contractual income is great, it is the details that matter. A 5 year history of a client consistently repeat purchasing is arguably more attractive to a buyer than a 5 year contract that includes onerous clauses is a red flag to an acquirer, i.e. a clause allowing a customer to terminate because of a change of control.
For every sale, we need to think about an acquirer, and getting your business into their target sights. Most acquirers prefer to be able to target specific businesses whether directly or through a search, preferring not to enter into a competitive process or auction. They want to minimise change in the target business while they take it over. One point we always try and get a seller to thing about is how to get the messages to possible acquirers before they make an offer. As part of an exit strategy, have you considered what will make you attractive to a trade or strategic acquirer? When you have identified what an acquirer might find attractive in your business, you need to get your name out with some PR, e.g. exposure in national trade press, in online articles covering these areas with specific keywords or phrases. Get your advisers researching possible acquirers and ensuring your business is on their radar.
To answer the question posted in the title of this article, the answer is ‘no & yes’. If you have planned your exit strategy and done your research, and readied your business for sale, then you can sell your business in the next 6 months. However if you have just wakened up to the hope that you want to sell your business (maybe you have had 1 too many disputes with your staff or customers), then yes you could sell your business at a heavily discounted valuation. But why would you do that, get a better price by starting the ground work today.
Making the decisions required to plan for the sale or exit from your business is never a simple set of choices and you will need some guidance. If you as an owner manger want to sell your business in the next 12 to 18 months or if you would like to explore how CMC can support you through your business journey, contact us via this form.