- 1. Exit Strategy: the best outcomesfor business owners come
throughcareful planning and preparation.
2. The process begins well in advanceof putting up a for sale
sign. Inthis guide to selling a business,Grant Thornton outline the
keyfactors for business owners toconsider.Contents1 Timing and the
market2 What is the business worth?3 Improving business value4
Selling the business5 Concluding the sale 3. Timing and the
marketOver the last decade, capital marketsPrivate equity raised by
fiscal yeararound the world became awashwith funds. These funds
primarilySource: Thomson Financial & Australian Private Equity
& Venture Capital Association Limited Surveyaccumulated through
a decade ofFiscal Year Ended June 30, 2006economic growth and
compulsorysuperannuation savings. Low interest 1999 Venture capital
raisedrates and low yielding traditional 2000 Private equity
raisedinvestments have driven fund managers 2001to seek alternative
investment strategies.Capital Association Limited Survey 2002Fiscal
Year Ended June 30, 2006. 2003Whether through
expansion2004strategies of larger corporates, 2005consolidation
strategies of private equity 2006managers or perhaps purely
directinvestment, this money is finding
a05001,0001,5002,0002,5003,0003,5004,0004,500home in middle market
privately ownedbusinesses.Never before has such opportunityexisted
for business owners to acceleratetheir succession planning and
considerthe future of their equity.Exit Strategy 1 4. What is the
business worth?This is a question close to the hearts of every
businessowner. Understanding the components of value can steerthe
owner toward a value improvement strategy thatresults in a
substantially better exit outcome.Perhaps the single biggest
determinantWhilst profit and risk can seeof the value of a business
is its current opposing accountants argue aboutand recent profit
history. It representstheoretical value indefinitely, thethe reward
to the business owner, and ofultimate determinant of value is
thecourse, the future business owner.strategic position of a
buyer.The second major determinant of thevalue of a business is
future risk. It is Beauty is in the eye of the beholder.an
assessment of the probability that theprofit of the business will
be maintained Factors such as economies of scale,or grow. Factors
to be considered incross fertilisation of products andassessing
this risk include:markets, market domination or even fast the
dependency of the business ontracking of growth, can see
particularthe business ownerbuyers pay more for acquisitions than
an sustainability of competitiveaccountants valuation.advantage
intellectual property growth and profit trends business disciplines
and practices culture and professionalism the market in which the
businessoperates.2 Exit Strategy 5. Improving business valueMost
people will paint the Business owners should undertakeAttention
must be focussed on those similar steps when preparing to sell
theirattributes of future risk describedhouse, weed the garden and
business. before. For example, what must befix the broken gutter
before So many businesses view their done to reduce the perception
that thethey put their house upbusinesses as their superannuation
business will no longer prosper without nest egg. It represents a
one-offthe business owner? Hence, what arefor sale.opportunity to
convert a lifetime ofthe implications for the management effort
into wealth. All too often, thestructure, policies and procedures,
majority of the familys wealth is tied upreporting, ongoing
innovation and in the business, invariably all at risk and
creativity and ultimately, the drive highly dependent on a
successful exit behind the business? outcome that is of course,
after tax,By attending to factors such as these, after debt
repayment and after vendor the business becomes more mature and
warranty provisions.will usually be in a better position to Clearly
a strategy must be set to grow and prosper without the business
maximise value. The aim is to get the owners daily influence.
business investment ready. Properly executed, value grows
exponentially. It can take up to five years to become investment
ready so it is important to start preparing early.Exit Strategy 3
6. Selling the businessAn InformationAn Information Memorandum is a
Throughout the process, a confidentialitydocument which highlights
the keystrategy is usually critical.Memorandum is value drivers in
the business and presents Business owners might be wise tothe
backbone of a the opportunities and challenges in aleave the
negotiation, documentation,professionally structured positive but
not misleading manner.due diligence and settlement to
theImportantly, it must be structured professionals. There would be
nothingexit methodology. such that prospective purchasers can worse
than frightening a prospectivequickly and easily access the
strategicbuyer away at the last minute whensignificance of the
opportunity and be their due diligence reveals falling profitsable
to propose an indicative offer forattributable to a distracted
businessthe business.owner. It must be capable of
withstandingFinally, it is the after-tax outcomea due diligence
process without anywhich matters most.material concerns. Armed with
an Information The whole selling process is aMemorandum, an
investment readyprocedural methodology structured tobusiness owner
can commence the next attract the right buyer who is preparedphase
of selling identification of ato pay a good price for a
businessbuyer. which clearly demonstrates strategic Not
surprisingly, in around 60% advantage through acquisition.of cases,
business owners alreadyknow their future buyer. It may be
acompetitor, a supplier or even a client. Alist of known suitors is
easily assembled.Attracting the other 40% requires asales program
using mass marketing andmultimedia outlets.4 Exit Strategy 7.
Concluding the saleOnce the money is inFor most of their lives,
business ownersHow can investments be structuredhave risked most of
their wealth to be in to provide good returns but mindfulthe bank,
most business this once-in-a-lifetime position. Theyof the risk
profile of the family? Howowners become risk averse,know how to run
a business, but how can taxation be legally minimised?quite
understandably. can they make the transition from a riskHow can the
estate planning betaker to that of custodian? properly structured
to incorporateSadly, too many business owners get superannuation,
insurance, wills andthis bit wrong! trusts? How can the owner
remainWhat does this pot of goldmentally challenged?represent? It
represents the future A comprehensive wealthsecurity, income and
lifestyles for the management strategy should bringbusiness owner
and their dependents for together all of these components.the term
of their lives. It represents theImportantly, like planning for the
saleopportunity to pass wealth to the nextitself, it should not be
left to the lastgeneration and beyond.minute.Grant Thornton design
exit strategies for business owners to meet their lifestyle,income,
wealth and security objectives. Whether the exit horizon is near or
far, thebest exit outcomes require careful planning and
preparation. We are here to help.If you want to know more, please
contact us...Adelaide BrisbaneMelbourne Perth SydneyLevel 1Ground
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