Business exit strategy is often seen as a final chapter, but the most successful exits are those planned well in advance.

Rather than waiting until you are ready to leave, preparing while you are still invested in the business can significantly increase its value and smooth the transition. Here is why early succession planning is essential.

Champions as a business has been built to service this misunderstood need. Often, business owners get to a point where they are either running out of time in age, legacy or bandwidth.

How should I exit?

There are really bad ways of going about an exit. You want to be looking and planning your exit when you’re loving it, not when you’re done, because when you’re done is not a driver of value.

Secondly, the industry tells you that you need to be engaging with professionals and advisors six to 12 months out from exit. You know you’re probably going to do this once. It’s probably going to be the biggest thing you ever do. It’s going to be hugely emotional.

You need to plan, you need to prepare, you need to organise, and you need to get the very most you can out of this opportunity. So naturally, take some time to get it right. In an ideal world, it’s five years. If you’re trying to do it in less than three, you’re probably taking some value off the cap table.

To maximise value, it’s important to treat your business like any other high-value asset before sale. Just as you would prepare a car for market, your business needs time and attention to become the best version of itself.

A simple analogy we use is, if you were looking at selling your car, you’d get it serviced. You’d MOT it. You get the scuffed alloy wheels fixed up. You take it to the validators. You’d prepare it to be the very best version of itself in order to get the maximum value, yet business owners don’t, and six to 12 months out from sale – you can’t do that.

What you should do is make it the very best version of itself, and then reap the rewards that improve trading performance, to demonstrate momentum, which will improve capital value. Most business owners don’t necessarily understand all the things that impact capital valuation.

Profit is a significant driver of value, but it isn’t EBITDA. Many don’t fully understand the things that are going to impact the multiple, and by the time they do, they’re being told what the multiple is, rather than controlling and steering what the multiple should be. Rather than just being told that you’ve got four times’ multiple, find out how to get a 10 times’ multiple, and then invest in those things in good time.

Preparing for exit

Understanding the factors influencing business valuation is crucial for owners aiming to maximise their exit outcomes. Beyond just profit margins, elements such as a strong management team, robust systems, and clear growth strategies significantly impact a company’s market appeal.

This perspective aligns with findings from the 2023 National State of Owner Readiness Report, which indicates a surge in exit planning education and awareness among business owners, leading to better-prepared transitions and enhanced business valuations

You can now demonstrate that they have been applied to the business in order to create the maximum value. Champions works in that pre-deal preparation stage from, ‘What is the essence of the business, and the thing that defines it and differentiates it in market?’, through to improved sales performance that will improve the EBITDA.

You need to be focusing on the things that improve the multiple, which is really the level of sophistication within the business. Have you got a strong board and a robust expertise across it? Our sister company, The Ned Advisory, is about supplying board expertise into businesses preparing for exit as its unique spot, because actually having a robust board of experienced people that have been there and done it adds a huge amount of confidence when it comes to crystallisation of capital value.

Second is then, have you got strong management team? Have you got a team that can activate the will of the board and the direction of the business, in a repeatable, well-processed way? You need to be looking at systems, processes, culture, all the things that galvanise the team so that you’ve got high retention, high motivation, and a well-drilled, well-organised team that can continually repeat processes on a consistent basis and is built with the ability to scale built within it.

In addition to board and management strength, the role of technology as a key driver of value and efficiency. He encourages business owners to proactively adopt scalable tools and systems before investors or buyers highlight the gaps.

Third is then leveraging and looking at technology. So again, most businesses are fairly unsophisticated when it comes to technology use, and one of the levers that private equity in particular does in its growth journey is leveraging centralisation and improved technology to drive efficiencies.

As a business owner, get in there before that happens. Leverage your own value growth from integration, automation, processes and systems, and then look into SaaS and readily available platforms before the opportunity of AI agents and more sophisticated things come in. There’s plenty that can be done in a very easy way, but most businesses tend to be scared of it or aren’t aware of the form of opportunity around it.”

What else should I be aware of?

Succession planning involves both financial and emotional considerations, particularly for founder-led or family-owned businesses.

It’s also important to assess the psychological impact of stepping away, alongside the need for careful tax and estate planning to manage the capital generated from a successful exit.

Another reason for the three-to-five year timeframe is the emotional and personal equity aspect, particularly for owner-founders and/or family businesses, as well as managing and preparing for the financial benefits that come from a successful exit. You will end up having some form of grief process if you’ve worked in a business 20, 30, 40 years.

You then exit that business, you are saying goodbye to it, and saying goodbye to something that has been a significant part of your life for that long is the same as saying goodbye to a loved one. There will be a need to deal with the grieving process. Knowing it’s going to be there in good time is far better than making a knee jerk reaction six months out and then it hitting you like a brick.

Also, the whole purpose of you exiting should be that you are taking a significant capital sum off the cap table, so there will be a significant amount of taxation. There is a substantial amount of strategy which should be considered in the preparation and planning of that capital injection into your estate, or into trusts on behalf of your family.

Matthew Hayes is managing director of Champions (UK) plc.

Read more

7 essential steps to guiding your business to private equity exit – Alexis Sikorsky, founder of Sikorsky Consulting, guides us through the essential steps to securing a profitable private equity exit

Why every business owner should have an exit plan – Almost half of UK business owners admit to not having an exit plan. Yulia Barnes of Barnes Law explains why you should

Partial exits: a balancing act – If it’s done correctly, a partial exit can advance your company by introducing new people with different skills and experiences, all the while allowing you to enjoy some of the wealth you have generated