Plan is vital for exit or succession
ONE of the biggest challenges for owner-operator companies is when and how to introduce some form of exit or succession planning.
Successful companies will mainly focus on their product and service offerings, expanding the customer base and managing operational issues to drive revenue and profitability growth.
However, there are a few key disciplines that will not only assist with exit or succession planning but, if done correctly, can also support delivery of these other business goals.
When considering the introduction of a financial or strategic partner, or an outright sale, the following areas should be contemplated to ensure the business attracts the right value, reflective of its true performance potential. ý Key-man risk: A business that relies heavily or solely on one person is riskier.
One with clearly defined roles, systems, policies and an institutional knowledge base is more stable and will attract external investors.
ý Reliable management information and key performance indicators:
External investors need reliable information to objectively assess the business.
More than just the annual financial accounts are required.
There should be an opportunity to obtain a deeper understanding of the business through key data points, the tracking of financial performance, the accuracy of budgeting and forecasting versus actual results and the ability to underpin the growth prospects of the business through a data-driven understanding of it.
The appropriate use of management information can often enhance the understanding of the business by the existing owners and offer opportunities for refinement and enhancement of strategy before any investor dialogues. ý Strategy and market strategy: Growth opportunities, prospects and market conditions should be clearly understood.
Being able to effectively define what the business can and should achieve will be critical. ý Record keeping and administration: An ability to demonstrate a proactive approach to record keeping and filing is helpful.
Critically, one should always seek to ensure that the business’ affairs (tax, legal etc) are fully up to date and any issues or concerns must be clarified and adequately addressed. ý External profile: The company’s websites, brochures and marketing communications are updated so that they reflect the desired external image. Contemplating an exit is in itself complex. Why would exit be relevant? Why would a minority investor be relevant? Am I looking to diversify? What is my role in the business going forward? Is a sale or a listing on the stock exchange more appropriate?
These considerations require expert input and guidance as there is never a one-size-fits-all answer to these questions.
In addition, if an exit in the medium term is a genuine possibility, it is also worth considering the legal structure of the company itself as well as that of the shareholders’ ownership of the company.