Looking For An Exit?

Arthur Daly once said “Terry my son, never buy anything unless you know how you’re going to sell it”. Or he would have said something like that. Business strategy is pretty much the same. You shouldn’t invest in starting or buying a business unless you’ve thought about your exit. Yet many retail businesses don’t’ adhere to that discipline.

Moreover when it comes time to sell the business – due to the lack of obvious succession – owners place unrealistic values on the business based on over-inflated perceptions of worth.

In recent times I’ve looked at acquisitions that have a valuation of what the business would be worth including the property asset value but without the property as part of the deal. Or based on a dreamed up idea of ‘future worth’ rather than a multiple of what the business has actually been able to achieve under the current ownership.

A balance sheet and a profit & loss statement doesn’t take a forensic accountant to decipher and, considering you know how to read one, betrays very quickly what you would be able to finance at the bank. No mater how you dress it up, that is all you can expect to receive as payment for your business at exit.

Loans to directors read as a red flag for understated employment costs. High stock or inventory numbers read as a red flag for mark-downs which haven’t been made. Recent leaps in top line sales read as a red flag for sales brought forward. Debt reads as a red flag for the need for a working capital injection or cash-flow funding shortfall.

There is no magic wand that will get you the number you want rather than the number the business is worth. So any exit must be planned so that the performance matches the value you wish to extract from the sales process and any assets – over and above the trading entity – are either included or excluded based on whats required to support the value you wish to extract.

One of my clients is a very clever businessman. He has de-risked his business investment by ensuring that he owns the property he trades from and that the property locations he chooses are in rapid property appreciation areas. Even if he were forced to write off the value of the investment in the trading entity he would still come out in front through the sale of the property or its development. In addition he is building a scale business in a category with great scope and with a clear exit strategy – including the likely buyers. And he has set himself a realistic timeframe to invest in building the business to a point where he can optimise the targeted return.

For some it is too late to work through this kind of process. They are in a position where they are forced to achieve the best outcome in a sub-optimal context. But if you not in that position then it is not too late to find yourself a clever business adviser and start work and building the plan to realise the best return for the hard work, the anxiety, the stress and the risk you have put into your business.

After all, the best exit is the one you achieve on your terms.