Article: Time for A Sharp Exit! Options to Get Out of Your Business!

READ: 5 mins AUTHOR: Robert Craven

  1. Very few agencies will ever get to a ‘successful’ exit
  2. Most agencies have not thought through how they will get to their mythical exit

So… the agency has been going for a couple of years and it’s all been going quite nicely… you have been making tidy profits… you’re taking home a decent whack… but where to next?

Most agencies talk around the exit topic, but few have the grown-up conversation. Many talk about making their money on exit, but how many? The answer is very few. Very few indeed.

Some 70% of business owners hope to sell their business on retirement yet only 25% have plans in place to do so!

The dream of taking the agency from the kitchen table to the full sale in 5 years happens to precious few. In the same way that precious few people who dream of playing for England ever do so. And if they do, it wasn’t quite what they thought it was going to be.

They haven’t looked at the stats. They haven’t looked at the odds and get blinded by the 1 in a 1,000 or 1 in a 100,000 or is it 1 in 1,000,000 that get to a profitable and happy exit.*

And then there are the unanswered questions that swim around in the endless exit debates feeding the dreams and greed of the uninitiated:

  • How much is the agency worth? How is it valued? What multiplier might be applied to what?
  • What is it that people are buying?
  • What are the common negotiation tactics?
  • What might a canny ‘other side’ do?
  • When is the best time to sell?
  • What does Due Diligence really mean?
  • How can we increase the value at sale?
  • What will they do to reduce the value at sale?
  • How long will it take?
  • How much of my time will it take?
  • What will the impact be on the business in the years of negotiation and sale?
  • How much will it cost (professional fees and internal costs, and loss of sales while we take the eye of the ball)?
  • What do people really buy?
  • Should I recruit a trade sale broker or an M&A expert or go for the DIY option?
  • What are the real tax implications of sale and how might they be mitigated?
  • What agreements and contracts need to be signed?

If you are looking to exit, several options appear in a rough order of ease:

  1. Bleed the agency dry
  2. Liquidate
  3. Friendly sale
  4. Trade sale
  5. Management buy-out/buy-in
  6. Business angels
  7. Venture capital
  8. Go to market/IPO
  9. Organic growth or ‘buy and build’ or agglomeration… then any of the options above.

 

The first two options are straightforward.

OPTION 1: 
BLEED THE agency DRY

Pretty straightforward this one – you just take as much as you can out of the business in the form of pay, dividends and perks irrespective of the performance of the business – not the sensible option and often the option people follow unconsciously… Right now, many are taking Government money, cheap and guaranteed Bounce Back and CBILS loans, and abusing them for personal gain in the knowledge that the business will close.

OPTION 2: 
LIQUIDATE

This option may come at the end of Option 1… quite simply, you just close the doors, shut up shop and wait for the liquidator or insolvency practitioner or bankruptcy courts to catch up with you. You leave them to sort out the outstanding debt and sort out the remaining creditors and if there’s anything left (after professional fees) then the shareholders get some money. Not the cleverest option and one that, again, some people do without any clear, conscious decision to do so. (Some do it semiconsciously, using the old Bounce Back and CBILS loans trick)

OPTION 3: 
FRIENDLY SALE

The idea behind the ‘friendly sale’ is that this takes place with everyone being happy. Someone nearby, employees (MBO) or friends or family don’t want to see the business disappear and take it over rather than see it sold. This is a great option but not predictable; often these sales do not see the highest valuation for the business because it is not a purely mercenary purchase but on the other hand, the business gets passed on to a friendly face! These sales may have the minimum of professional advisor ‘interference’. Often these sales are set in motion quite early on as an owner gets a hunch that there may be a private deal to be done.

OPTION 4:
TRADE SALE

Selling the business to the open market requires there being one buyer out there who wants to buy a business like yours. Usually they will be buying to get into a new market or access to customers, but it may be to acquire your technology, your goodwill or your market share.

Trade sales tend to get you a better price when it is not known that you wish to sell but each deal is different! Ideally you would set your business up to look attractive to the purchaser so you should think carefully and a long time in advance about what a buyer might wish to buy (a management team or ideal client list) and create a business to reflect that.

It is at this stage that you can get a mergers and acquisitions professional to help you present the agency in the best light and to negotiate the best deals on your behalf.

OPTION 5: 
MANAGEMENT BUY-OUT/BUY-IN

Your management or another management might wish to buy your business. MBOs are attractive to the existing management because they know the business already, warts and all. A similar set of guidelines applies to selling the business to MBOs, MBIs and the other sensible options below (whether selling the business or looking for funding).

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