6-steps to strategic exit planning
Running any business is a challenge. Some business owners choose and relish the pressure and opportunities that this choice ultimately casts upon them. Others fall into the position through redundancy or family succession and sometimes find the status rather less to their liking. Either way, it would be unwise not to accept that the challenges should be met head on with enthusiasm and endeavour. The starting point should be that business throws up risks and rewards unlike being an employee. Your efforts to maximise the rewards to you and family should be focused on creating business value, which is a business process and planning a lucrative strategic exit from the business over your own preferred timescale. Ridgetown have a proven model approach that will help you achieve this outcome and we would like to share it with you.
1. Start at the end. Ask yourself who will ultimately want to buy your business and why? If they were to pay a full price for the company, what would they expect to see? How many years will it take you to build this ideal business and what will it be worth to the buyer? These are the type of questions that should form your strategic exit planning. It will involve really understanding where the value lies in the business and what the business is worth both now and once the task is complete. If the task can be accelerated, you should do so but try to keep instep with the trends and attitudes within the market and adapt your approach accordingly
2. Undertake a realistic assessment and analysis of where your business falls short of your ideal strategic exit. Some common examples where a business could need longer to prepare itself for an exit might be in upgrading the IT platform that the business uses or generating the profit levels likely to reach the valuation that the owner seeks from the company sale. This will involve a great deal of soul searching and honesty across the whole business to gather as much data and market information as you can to measure the level of the shortfall. This stage is vital because it often very difficult for a business owner to be dispassionate in their own corporate financial assessment
3. Now is the time to build an action plan that involves the whole company, especially the management. It is vital to pull staff along with your company objectives. This plan should cover business and family succession planning; IT platforms and reporting; key markets and products; market positioning; profitability, cashflow and returns and management reviews (see 4. Below). The goals should be clear and concise with actions assigned to relevant team leaders with agreed timescales and outputs
4. The management review is so fundamental to the process that it should be undertaken separately as an integral part of the action plan. The reason is that it is usually the most complex area and most challenging to get right. The approach will be different for a family company as part of the strategic exit planning approach because blending family and outside personnel to get the best team is never easy. Professional help from HR may be required and working with recruiters should not be excluded. Layering age with experience that is based on meritocracy often works. Dependent on the timescale, training and development programmes can be very useful to bring talented individuals through the company enabling the business to employ a rounded, skilled and affordable workforce. You should always remember that your management should be an alternative strategic exit regardless of any business or family succession planning exercise
5. As part of the action plan, you should be evolving your management reporting systems. These are fundamental in measuring your progress over time and against the key performance indicators that you should set yourself. At the core of this approach, your reporting should have a rolling 5-year forecast that is updated annually. The measurements should focus on product and company profitability; cashflow and liquidity and shareholders’ returns. Without refinement in this key area, it will be almost impossible to measure the effectiveness of your plan and intervention
6. Finally, generating a strategic report that is shared across the company or group is an important step. Having done a lot of excellent groundwork to create value in your business, it must be summarised and shared across all staff, if it is to be effective. Having such a plan is crucial in terms of both corporate direction and staff motivation. Without it, businesses tend to feel rudderless and somewhat confused. It is also invaluable to start building a secure data room. This is a digital collection of all the important and required documents that are likely to needed as part of any business sale or transaction
So, there you have it. A roadmap to building value in your business and ensuring your strategic exit planning is successful and remunerative. There is one last obstacle to navigate- timing? The above is very dependent upon where you are in the business cycle. The economy has its ups and downs and sometimes they are driven by sector, national or global factors (Covid 19 for example). This approach will help you to understand and limit your risks as to when is the best time to exit but such unpredictable circumstances certainly make the task much harder.