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How to prepare your company for exit

When you set out on a journey, it’s helpful to have a map and an idea of your destination. I don’t think of business journeys as very different.

When an entrepreneur seeks capital, they also need to have an idea of their ideal destination and a plan of how to get there. It could be that they are seeking investment with a view to staying on and growing their own business, or as part of a strategy to de-risk, realise capital and exit to pursue other opportunities. But how to prepare your company to achieve these goals should be in a founder’s mind from early on.

Of course, a big part of the challenge is deciding which path is best for you and the business. But one thing’s certain – planning carefully will pay dividends regardless of where you’re headed. This is true whether it’s managing business growth or achieving a successful exit when the time is right. Foresight, focus and, often, an external perspective from people who have “been there and done that” can be the keys to getting the outcome you want.

 

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An external perspective

At Livingbridge we’ve invested in more than 100 companies and worked with countless others. This experience helps our team to spot those with the potential for exciting growth. But we’ve also seen that when it comes to an investment or exit process, even the most experienced business owners sometimes struggle. If you haven’t been through a sales process before it’s easy to get distracted by the detail, perhaps taking an eye off the day-to-day running of the business. Other entrepreneurs can take such a hands-off approach to the process itself that it never properly gets off the ground.

Another thing we see is business leaders being reluctant to consider the views of people outside their organisation who can scrutinise and challenge it. This really matters because any investor will demand detailed answers to difficult questions. Can the founder and the wider management team explain and defend the financial projections; do they understand their place in the market and why the business wins? Most entrepreneurs would gain something from having someone impartial to ask these kinds of questions, and identify points of weakness ahead of investment or exit, whether it’s corporate advisers, a business mentor, or a non-executive director.

Spending money to create value

Think about a house that’s up for sale. If you know it’s damp, you fix the problem before putting it on the market. If you don’t, any potential buyer will discover what’s wrong, then walk away or offer a lower price. Solving a business’s underlying issues takes effort and money, which is why it can be easy to resist. But hiring the cheapest advisers or avoiding paying for good advice (legal, accounting, regulatory etc) up-front can destroy value and waste time. You need someone to point out any flaws, and the right advice will cost money. Hearing uncomfortable truths about your business isn’t easy either. But it will yield rewards in the long run.

Good relationships are at the heart of a successful deal, so any entrepreneur must find advisers and an investor with the right experience and style for their business. Always reference to find out a potential partner’s track record. And if someone tells you something that seems too good to be true, it probably is. It might be easier to believe you don’t need advisers, or that it’s not necessary to tidy up your management accounts. But cutting corners will only cause problems – possibly serious ones - further down the line.

 

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What makes a business saleable?

Entrepreneurs often ask me how to make their business more attractive for sale. The truth is it’s unwise to dress anything up as something it’s not. If you just paint over that damp patch before you market your house, the mould will soon be back. Be honest about what the business has and what it lacks.  Showing awareness around your business is a strength. An investor expects to make a difference, so it’s fine if gaps exist but better if these can be identified in a collaborative manner.

The right partner for the best outcome

It goes without saying that an entrepreneur looking for investment should choose an investment partner that can work well with the business in order to maximise ultimate value for all stakeholders. Therefore whilst it may seem a long way away, it is important to look at the investors’ experience of positioning a company for exit at the time of initial investment.

Livingbridge’s experience of investing in fast-growing businesses and preparing them for sale means we are well placed to find a strategy that will best position a company for exit. We can help entrepreneurs find the right help, be objective, and tackle whatever’s necessary to achieve the best deal for them. To find out more, please get in touch.