Leaving Already? What You Need to Consider Before You Exit Your Business

Jul 03 2023

In today’s challenging business climate, if you’re a small or medium enterprise (SME) owner, and are considering exiting your business, rest assured you wouldn’t be the first. As Finance Directors, we see the stats more often than most, and we know the pressure you’re under.

According to recent figures from The Irish Times, 70% of Irish SMEs fear closure in 2023, with management consultancy PwC Ireland reportedly predicting that over 1,000 firms could go under if the recession continues. Faced with odds like those, it might indeed seem like a good time to head for the “Out” door and find some other fires to put your irons in.

But it’s important to understand that selling up, whilst a legitimate way to move on from a business you’ve built, isn’t a quick fix for a temporary downturn  – at least, not if you want to maximise the sale price – because it requires forethought, preparation, and counsel.

We advise business owners on their exit strategy practically every day – and here’s what we tell them.

It takes years, not weeks

Selling a business successfully can’t be done overnight. It can typically take 2 – 3 years to effectively prepare a business for sale and to complete the transaction.

This is because selling a business is complex, with many different milestones in play.

You need a full understanding of who might buy and why – and that’s an in-depth investigation in its own right.

You need to produce sales collateral and promotional materials to demonstrate the strength of the business to different types of buyers with differing priorities.

You also need to go through a due diligence process and oversee the prodigious output of documentation required to satisfy it (terms of trade, contracts, legal documents, Board reports, management accounts, and more) … and all this is only scratching the surface.

While preparing a business for sale in this way is critical, it’s making the business sale worthy in the first place that ultimately determines whether a savvy buyer will be convinced or not – and this often requires much work to be done to the business itself.

Meanwhile, you’re also expected to get on with the day job of actually running the show. No wonder you’ll need some help from us!

There’s more to fix than you think

One of the interesting paradoxes of selling a business is that, in many ways, you have to be more invested in your people, processes, systems, and performance than you were before you decided to sell. And, inevitably, this means you have to fix a bunch of stuff you never saw as an issue before.

For example, you’ll need to put in place training and processes to enable people to step up and shoulder more responsibility as you gradually scale down your day-to-day involvement in the business. Buyers will look very hard for this evidence that the business won’t collapse once you’re gone.

At the same time, you’ll be under pressure to thoroughly examine where processes, tools, and technology (including the business’s website and digital marketing channels) could be improved to deliver better conversion, productivity, efficiency, cost-effectiveness, and risk.

This is where you could end up walking a financial tightrope. Investment to increase the value of the business and optimise its sale price must be balanced with careful cost management elsewhere in the organisation to keep expenditure at an essential-only level.

It’s a delicate dance that many business owners will struggle with – again unless they have additional Finance expertise and support available to call on.

Beware the buyers

“Buyer beware!” goes the saying, but often in business exit it’s the other way round – the buyers are the problem.

One of the biggest logistical risks in selling a business is getting caught off-balance by an influx of inquiries and being unable to effectively triage them into viable and non-viable candidates – which can badly distract you from your core business activities.

Buyers’ intentions can also make the selling process slippery. A competitor may be looking to acquire your order book, poach some great staff, or close your business down, and these more tactical and discrete approaches tend to envisage a price that is rather lower than your true market value.

Even buyers with the best intentions – a company whose products or services your business complements, completes, or provides an additional route to market for,  for example – can be put off by the headaches of making two businesses one.

Drastically different cultures and systems, for example, can make the transition difficult for all parties involved, and it’s important to remember that the buyer still has the option to simply close the business down after the sale if the integration costs and efforts prove too high relative to the returns – a consequence that is likely to prove emotionally difficult for you, your close colleagues, and the business’s employees.

In short, a healthy balance sheet and compelling messaging won’t be enough. You’ll also need expert advice on how to plan for and execute systems and process integration, particularly with regard to business-critical disciplines like Finance.

When the goalposts move…

It’s a sobering thought that the sale of a business is just one more transaction the Government can make less profitable for you if changes to businesses’ taxation rates and social charges force a buyer’s purchase price threshold down.

The Government may historically have implemented some business-friendly support in the form of reduced Capital Gains Tax as part of the Entrepreneur Allowance (from 33% to 10% (a greater reduction than our neighbour the UK recently got) – but in the 2023 Budget it also increased the minimum wage rate.

Additionally, the Small Firms Association has identified a plethora of other financial pressures acting on businesses that, if they continue to increase through 2023, may well serve to make buyers more scarce and sale prices less generous.

Understanding the direction of travel for future Budgets but also for the wider cost base is therefore critical, and it highlights the importance of seeking expert Finance advice to put in place timely mitigating strategies.

“The plan is nothing – planning is everything!”

Eisenhower’s famous phrase emphasises the ongoing and reiterative nature of successful planning, and it’s as true of selling a business as of any other complex process. It leads us to make four key points, in summary:

Firstly, whilst “getting out” might seem like a sensible option in an economic downturn, you’d be better advised to seek advice on how to rationalise costs to survive now and how to plan for a successful exit (rather than one that doesn’t deliver what your business is truly worth) later.

Secondly, your business has likely grown organically, but buyers want a defined shape that fits a defined hole, so be prepared to carry out a lot of hard work to reshape your organisation’s processes, data, and management information to close the sale.

Thirdly, start now – because this is a slow burn, but rushing will leave you out of pocket.

And fourthly, we’re here to help you with all of the above – and what it won’t cost you is the salary of a full-time Finance Director or CFO.

For more information on how you can use EFM Ireland’s team of Finance and business management experts on a pay-as-you-go basis to prepare your business for a successful sale, get in touch today

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