Is An Exit Strategy A Business Broker’s Domain?
Is An Exit Strategy A Business Broker’s Domain?
Although the concept of an exit strategy is trending and as such, has become a buzzword, I hasten to caution you to recognise that an exit strategy is not a new “fix-all” phenomenon.
We can agree, that an exit strategy process can be condensed into the act of selling a business.
The broker pursues a negotiation strategy and there is a need to get the business sold. For example, the business may have reached its use-by-date in terms of the business cycle of around five years.
Brokers are experienced in dealing with this reality. They are compelled by the common reasons touted by sellers for wanting to sell their business.
The seller attempts to pass on the resultant pressure to the broker as they need to sell (exit) the business in haste.
The consequence of listing in this environment is that the broker finds it difficult to prepare the business for sale in the time frame provided and there is a tendency for the seller to expect an unrealistic asking price.
That is, the sale is seen as a solution to the financial stress that the seller is confronted with in his/her personal or business capacity.
Every business owner must at some stage exit their business. (I’ll add this in the category of the driving inevitabilities of death and taxes). Primarily, brokers are there to address the conflicting interests of the parties such as sellers, buyers, accountants, landlords and solicitors.
The ideal outcome is to persuade and ultimately enable and drive the sale to a point of agreement. The deal is held together for long enough for the business to settle.
Of course, the resulting “refresh” in the business creates new life and is often saturated with optimism. This welding together or amalgamation of the party’s divergent interests is an important skill-set for the broker so that they can take home a “pay packet”.
The transition to new ownership or a restructured dispensation with new management directions is the intended outcome. We add business brokers to the mix as they are about achieving the sale.
This is understandable as this is where they receive payment and training. However, are brokers prepared to put the business first and step away from a hasty and therefore, premature sale? Are brokers in their time frame of immediacy, permitted to enter into the business psyche and systematically work as advisers in the interest of the business?
I do not believe so, as such a pressure cooker will cause “knee-jerk” responses that will negate and oppose the full and carefully measured alternatives that are called for in a prepared and systemised business exit. Any will to implement suitable progressions that are required to obtain the best-planned outcome is dissipated, bled or totally ignored.
To me, the paradigm of a business exit suggests intent and planning. It is beyond just an opportunistic and motivated collection of the basic but important documents and information required when listing a business for sale.
Therefore, the exit strategy process is certainly more vigorous as it requires in-depth, sustained coordination and management of all aspects of the business. It involves internal, external and personal considerations and inputs regarding the business. In my opinion, such activity is beyond the core strengths of the broker.
The exit plan is formulated as early as the inception of the business. It is careful, considered and can be seen as the master goal of the business. It becomes the main focus of the business and ordinary business pursuits are compelled to respond to the focus of this exit.
The secret in this planning is that it requires systematic attention to business development. It oversees the gradual withdrawal of the seller as the key person. It ensures that the business has a management model that is sustainable and not dependent on the seller’s direct involvement.
In reality, the exit plan becomes the DNA of the business. The business is methodically prepared for sale. When the plan is completed, the seller has the best opportunity to optimise the sale price and the buyer will see the parity between value and price. The business information is authentic and easily defended.
The business, due to its genetic encoding, is committed to the business exit. It is not an add-on. It is not just a marketing ruse. It is not staging. All activities of the business lead to the preparation for the sale.
The business owner is systematic in the processes as they know that ultimately, this is the purpose of the business. Normal business activities such as profit and cost of sale, is still achieved but will enhance but not deflect from the planned exit.
This is when the broker is called in.
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About the author
Ray Dye
As a previous multiple business owner in South Africa, Canada and Australia, Ray has an exceptionally high level of expertise when it comes to knowing ...
