Date: 06/06/2016 | By: Kevin Brent

Exit Strategy Planning

The aim of this blog and associated webinar is to help guide business owners in developing a suitable exit strategy.  This

blog covers some of the key points – for more detail listen to the webinar recording, 

by Clicking Here!


We will:

  • Consider reasons why we need an exit plan and when we should make one
  • Look at alternative ways of exiting
  • Explore ideas to help identify potential purchasers
  • Review ways to assess value/ help answer How much will they pay?
  • Suggest ways to maximise the sale price
  • Outline the planning and management of the sale process
I know

In putting this blog together I have referred to the following 3 books/ authors:How to Value & Sell your Business – Andrew Heslop, Exit Strategy a practical guide to selling your business – Graham Watkins, Built to Sell – John Warrillow

Why should we all have an exit plan, why would we leave and when should we make one?

There are a number of reasons why  – essentially they come down to being in control and having options.  There are a number of ways to exit a business and a number of reasons why we might want to or need to exit.  Having an exit strategy means that you are more likely to control the timing  – and if you can’t control the timing make it more likely that the exit will at least be on your terms.  The vast majority of business owners who don’t plan end up walking away from their business when they retire or have had enough.

Key reasons for an exit strategy:

  • Protection – from unforeseen circumstances, market changes and protecting the value of the business you have built
  • Helps drive greater success – a good exit plan will help you focus on the issues that will make your business stronger
  • May help you stay on longer – working to a good exit plan should help take you out of the day to day grind and may keep you motivated longer!
  • May help you to release maximum value from your business – one of the key aims certainly

Why and when might we leave the business? – well I can guarantee that you will exityour business at some point – either willingly or carried out in a coffin!  What you can’t know is when – unless you plan it and give yourself some chance of knowing.

You may wish to retire, you may want to hand over control perhaps to family, you may want to cash in, try something different or you may be forced into leaving by a change in personal circumstances – e.g. ill health or divorce!  You may spot an outside opportunity or may come under threat from competition – many reasons you may leave.

So it should be pretty clear that you can’t start planning your exit too soon.  Ideally you would have thought about it before setting up your business because it will help you to decide what kind of business you want to create and what sort of role you want to play in the future.


There are several alternative ways of exiting

  • Flotation – suitable for less than 1% and costs £350k plus
  • Trade Sale
    • Management Buy Out – MBO. (existing/ internal management team)
    • Management Buy In – MBI (a new/ external management team)
    • Hybrid Buy In – BIMBO (combination of above)
    • Acquisition by another company
  • Asset Sale – Voluntary or Compulsory Liquidation
  • Walk away
Take flight

The most popular and the focus of the rest of this blog is the trade sale.

Who will buy….. this wonderful business?

When it comes down to it, it is highly likely that a potential purchaser will come from existing relationships that your business has i.e.: Competitors, Suppliers, Customers, Employees, Private Equity Firms, Business Angels (national business Angels organisation)

So a really good place to start with your exit plan is to make a list of your key competitors, suppliers and customers and for each note down who are they and why might they be interested in buying you?

How much will they pay?!

You may have heard the expression regarding there being only 2 certainties in life – death and taxes.  Well there is a third – and that is: the valuation is wrong!

A valuation is an opinion – nothing more.  There might be ways to guide that valuation but at the end of the day the value is “…the price someone is prepared to pay for it in the open market”

It is not simply about the financial performance – sometimes people will pay more than the financial valuation.

This might because they see synergies – a horrible word but basically they see ways to

  • Sell more
  • Charge more or
  • Spend less

Another reason someone might pay more is if they are a listed/ quoted company and you are not.  This is because listed companies are seen as less risky and therefore tend to sell for a higher multiple – which means if they buy you and your business becomes part of theirs it is instantly worth more!

So the next really useful thing you can do is to go back to your list of competitors, customers and suppliers and think about how they might be able to add value – could they sell more, charge more or spend less by having your business as part of theirs.  Spending less might be about stripping cost/ overhead but it might be about efficiencies or about being able to get up and running in a new area more quickly and at less cost than doing it themselves.

Whilst it is not the focus of this blog, we can’t leave the question of “how much” without looking at the different ways to value a business.

Essentially there are 4 Key methods

  • Net Asset Value – not normally used for a thriving business/ trade sale
  • Comparables – private sales and/ or p/e ratios of publicly listed (just like you might do in buying a second hand car)
  • Multiples– multiples typically of pre-tax profit)
    • Public companies long term average of 15x profits/ earnings
    • Private companies approx. 4-5 x profits
  • Net present value – discounted cash flow

A couple of others include:

  • Cost of entry into a new market and
  • Sector rules of thumb – e.g. 1 x Gross Recurring Fees (Accountancies)

With small and medium sized businesses then often a multiple approach is used – certainly for the initial valuation.  The most robust is the net present value which forecasts future profits/ cash flows and discounts them back to a current value based on risk and the time value of money – a £100 now is worth more to you than the promise of £100 in a year’s time. 

How can you influence the price someone will pay?

As we’ve already said, some business will sell for more than their financial valuation and therefore more than the typical multiple – maybe even twice as much.  So how can we help to influence that in the way we build our business?

You’ll be glad to know that you can influence it – but not overnight.  You need to adopt certain principles in the way you build your business and I covered these in another blog that you can read here


Essentially there are 8 key drivers of value – one of which is financial performance.  When someone buys a business they are buying the future stream of profits and so anything you can do to reduce the risk and increase the likely size of those profits the higher the likely sale price – so a lot of the drivers are around making the business more stable/ robust as well as about increasing future opportunities for growth.

Once you’ve read the blog on building your business for value, if you’d like a free initial assessment of your business based on those values then email me at

Now is a good time to build your investment story/ elevator pitch.  To do that think about the following key questions:

  • How does your business generate ‘happy’ customers?
  • Why are they ‘happy’ to pay you?
  • Why will this continue in the future?
  • Why will you achieve this despite the efforts of competitors?
  • What is unique about your approach?
  • Do the financials support this?
    • Turnover?
    • Profits?
    • Costs?

How can you get your equity out?What do i do

Once you have all this it then comes down to how you want to manage your exit process.  At the end of the day there are only four basic ways to release your equity:

  1. Sell all the shares and leave
  • How and when will you be paid?
  • How would a prospective purchase view your departure?
  1. Sell all your shares and continue to work in the business
  • Lock in – 1-3 years?
  • Targets
  • Boss!
  1. Sell some of your shares and leave
  • Protect your interests – minority or majority ownership?
  • Control?
  1. Sell some of your shares and continue to work in the business

There are pros and cons to each of these – on both sides.  If you want to exit cleanly with a short time working in the business after the sale, then you need to have built your business according to the 8 drivers mentioned earlier.

So now we should be able to complete a final useful step in your exit plan “What are your objectives for exit?”

  • Aspiration for sale price?
  • Timescale?
  • Target market of potential buyers?
  • Practical ideas for maximising the value?
  • How you will manage the exit process/ release your equity?

And finally

When you put all of this together you will have the core elements of a robust exit strategy – so as a final call of action start answering these questions:

  • Who will buy your business?
  • How will you increase the potential sale price/ build for value?
  • Develop your exit strategy based on the steps outlined above and points below – even if it is in note form
    • Objectives and aspirations
    • Current Valuation
    • Opportunities for increasing the valuation
    • Barriers to sale/ indirect limiting factors
    • Sale process
    • Tax Planning – take advice!

Good luck!


The aim of this blog and associated webinar is to help guide business owners in developing a suitable exit strategy.  This

blog covers some of the key points – for more detail listen to the webinar recording, 

by Clicking Here!

BizSmart aims to help business owners of small and medium sized businesses to create value and scale their businesses through sound practical business support by providing- Insight, Clarity and business support with a real determination to help you succeed.  You can access blogs like this and more besides through our free SmartRoom service here