The journey of a business owner encompasses various phases, intertwined with their own lifecycle, perspectives, needs and aspirations. This journey includes building, sustaining and eventually exiting the business. That last phase often gets overlooked when planning out the business, which can lead to frustration and difficulties.In this article, we will explore the importance of preparing for a smooth exit and the steps an owner should take to maximise the value of their business for retirement or passing it on to younger generations. We have created a scenario that will help you connect with this important topic.
The scenarioWe encountered a business that piqued the interest of one of our clients. This business, established by two brothers nearly three decades ago, provides them with a good livelihood. Despite being severely affected by the financial crisis, the business managed to survive. However, one of the brothers now faces health issues, while the other is eager to exit the business to enjoy the sale proceeds. Unfortunately, on a week-to-week basis, the latter is required to dedicate a minimum of four days to keep the business afloat.
A familiar situationThis situation is all too common. The value of the business is draining and the owners seem powerless to prevent it. Younger, more agile and progressive competitors are gaining ground, while the business still holds onto some valuable contracts. Nevertheless, there is a fear that these contracts might be lost.
Losing customers is a natural occurrence for businesses, but the critical question is whether they are still perceived as top-notch service providers in the minds of potential buyers, ensuring their ability to win new customers.
So, what could the brothers have done differently?The key to a successful exit is strategic planning in maximising the business's value. Businesses are most valuable when they are growing, profitable, cash-generative, and, most importantly, when they possess a degree of control over their market. Technology-based companies often receive eye-watering valuations because they demonstrate or are believed by investors to possess these characteristics.
The same principles apply to all businesses, from a local undertaker to a courier company. Values may differ, but the formula remains the same. In essence, as a business owner, your primary focus should be relentlessly working towards turning your business into a growing, profitable, cash-generative entity that maintains some control over its market. In other words, you must work on your business, not just in it.
As you embark on your journey as a business owner, keep in mind your eventual exit. Plan strategically to ensure that your business is in the best possible shape when the time comes to retire or hand it over to a younger generation. By prioritising growth, profitability and market control, you can maximise the value of your business and secure a successful and rewarding transition.
At Crowe, we have a dedicated corporate finance team that has a wealth of experience advising clients on delivering value in business.