Exit-ready in an election year? It pays to be prepared.

This year, more voters will head to the polls than ever before in a single year. Democracy is alive and well in most countries, yet this doesn’t mean that there isn’t uncertainty along the way. Whether you are in the UK, the US or South Africa, elections will make a difference to your life this year as an entrepreneur.

Markets hate uncertainty. There’s a simple reason for this: uncertainty equates to risk, which in turn means lower valuations of assets. Thus, volatility and downward pressure in markets become part of the landscape in an election year. This can have a significant negative impact on your mindset, particularly if you feel like you aren’t in control of where your business is headed.

One of the ways to mitigate this feeling is to treat exit planning as an iterative process rather than a journey with a beginning and an end.

Even when you aren’t planning to leave the house, you still keep your keys somewhere conveniently close to the door, don’t you? You don’t drop them at the bottom of your cupboard, making it difficult next time you want to go somewhere.

Exit planning for your business shouldn’t be any different. If your business is constantly in a state where you can look to sell it, then you’re in a much better position to reach to global changes and how they affect your life strategies.

Exit-ready in an election year? It pays to be prepared. What does a good exit plan include?

There are ultimately two issues that an exit plan tries to address:

  1. What price can my business be sold for?
  2. How easy will it be to sell my business without onerous conditions?

An exit plan cannot be created without proper appreciation of the type of analysis that goes into the sale of a business. This goes far beyond the basics like growing sales, managing expenses or doing your tax filings.

Perhaps the best analogy is that selling a business is like selling a house. You can’t do that successfully without a reasonable idea of what the house is worth. Maximising the price and minimising the time taken to sell that house is then achieved by preparing it adequately for sale.

If the house desperately needs painting and has additional rooms that aren’t on the building plans, then selling isn’t a quick endeavour. If the neighbourhood starts to deteriorate, you’ll wish that you were ready to sell before it’s too late.

And if you think that selling a house is difficult, then you better buckle up for a sale of your business. It’s an incredibly tough process in any market, which makes exit planning even more important.

Exit-ready in an election year? It pays to be prepared. But iterative exit planning sounds like hard work?

It doesn’t have to be. In fact, if the key elements of the exit planning process become engrained in your business, chances are very good that you’ll improve the performance of the operations and feel far more in control of what’s going on, especially when uncertainty knocks on the door – like in an election year.

Here are just five examples of how an exit plan can help you create a more valuable business:

  1. Focusing on revenue quality, not just growth
    • Growth at any cost isn’t helpful. It creates far more value to achieve profitable growth by selling a broader range of products to a broader range of clients, driving a higher valuation multiple on each dollar of revenue or profits.
  2. Running an efficient operation
    • Inefficient expenses may only be a headache for you, but they will be unacceptable to a buyer of the business. Don’t allow things to enter the business that you’ll need to explain away later.
  3. Working yourself out of the business
    • Every time you need to do something pivotal in the business, you are making it harder to sell to someone else who will need to step in and do those pivotal things. By handing over absolutely everything you do to the people in your business, you’ll create an organisation rather than a self-employment opportunity – one that is much easier to sell. You might even create a cash cow that is so valuable and easy to own that you choose not to sell it anymore!
  4. Creating scalable systems and processes that reduce stress
    • A stressful business is much harder to sell, as the buyer needs to be willing to take on that stress and pay you for the pleasure. A strong operational focus that actively removes headaches and risks will make your business far more palatable to buyers.
  5. Chase the skeletons out the closet
    • Nothing scuppers a deal faster than unwelcome issues like tax returns that aren’t up to date or compliance issues in the business. It goes deeper than just the regulatory matters, as you also need to make sure your staff are all on adequate contracts and correctly incentivised. If your strategy is to hope that the buyer doesn’t find the issues, you’re setting yourself up for embarrassment and disappointment.

Exit-ready in an election year? It pays to be prepared. This exit plan is sounding more like a business strategy

Exactly. That’s the point. The only real difference between an exit plan and a solid internal strategy is that an exit plan applies the lens of an external buyer, which actually gives it more objectivity and thus makes it even more powerful.

Alongside the exit plan, a valuation as a starting point is incredibly important. It tells you where you currently are, which lets you plan for where you want to be. The exit plan is the roadmap to get there, with ongoing iterations as a tool to continuously work towards enhancing the value of what you’ve built.

The prize at the end of the day? Not just a potential sale of your business, but perhaps even more importantly, a sale that doesn’t come with onerous provisions like earn-outs, deferred payments and frustrating handover periods. By pre-empting the reasons for these provisions and addresses the risks that lead to their inclusion by savvy buyers, you’ll increase the value of your business and make the sales process a lot easier.

Exit-ready in an election year? It pays to be prepared. If you’re going to sell your house, it should be in tip-top shape. Your business is no different.

At bizval global, we assist founders with exit planning processes. This ranges from simply adding a valuation to your plan with our concierge offering, right through to being more involved in the finer details of your risks and associated mitigation strategies in our exit offering. For an objective, independent assessment of your business and how exit-ready you are, speak to us today.