The graphic above outlines the key elements of the business we considered prior to exit which I have expanded on as follows:
- Role of the Entrepreneur: You need to ensure the business doesn’t rely on you for its success at exit; consider moving into the role of chairman at least 12 months prior to exit with a strong management team and CEO in place that will stay post sale.
- Financials: There are a lot of things that will come up through DD that the buyer is looking for, however, a few of the core things are excellent cash flow management, a tight control over costs, 3-year historic P&L trends with strong forward growth projections.
- Products & Services: Buyers in my experience are looking for focused acquisitions. Therefore, narrow and deep product/service offerings are far more valuable than broad and shallow ones. You clearly need to keep innovating, but it should be focused on your domain expertise.
- Operations: We developed a comprehensive, hierarchical set of operational KPIs using a balanced score card (© Norton and Caplan) approach. We then used these to measure progress towards our goals on a weekly/monthly basis. You will also need evidence of operational process discipline, robust systems (especially financial and CRM) and some form of basic governance structure so it’s clear who is accountable for what and how risks are assessed and managed
- Assets and USP: I link assets and USP together because most businesses claim they have a USP, unfortunately, it is often easy to imitate by competitors. In order for a buyer of your business to truly value your USP, it needs to have one or more of the following characteristics: High capital barriers to entry, high intellectual property barriers to entry, geographic proximity to customers, patents/protected IP, power balance that sits with you as a provider of services
- People: In all the businesses I have run, the common trait to success has been the quality of the people. There is a great phrase from Ronald Cohen, ex Apax Partners which is “investors back jockeys not horses”. So, your job as founder/entrepreneur, is to recruit a senior team better than you to hand over to so that when it comes to exit, the team is in place to double the size of the business over the following 5 years.
- Customers: There is a common theme in all my articles, which is focus. It is no different when it comes to customers, you need to pick the ideal customers for your business to serve, where there is plenty of room for market growth and good profitability. This sounds easy, but, when you analyse your historic financial performance, it should become clear which clients you want/need to serve and those that are non-profitable and need careful exiting
- Sales & Marketing: The key thing here is to ensure that there is a sustainable, experienced machine driving the sales and marketing efforts. You need to be able to demonstrate historic sales growth over the last 3 years as well as a strong forward pipeline
In summary, agreeing a shared picture with key stakeholders (shareholders and management) is critical if you intend to exit. However, there is one caveat; once you declare you do intend to exit within a reasonable time-frame, expectations will be set and calculations made about personal values on exit so, you have to be committed to driving the plan through to the inevitable conclusion.
I wish you every success with your planning and hope it delivers the value and expectations you have dreamt of.By Mike Lander, director and co-founder of Ensoul, and business consultant