Most businesses have a pretty clear idea of where they want to be and what kind of growth they’d like to see. What they have in mind might happen; it might not. In many cases a business will develop in unexpected ways, with unforeseen opportunities or approaches. However – for many, there is a clear general path, and putting the right planning and preparation into that direction will always be the right thing to do, and always (this is a bold use of “always”) be an investment which bears dividends.
If your goal is an exit by sale, or an investment, then you need to make the business saleable, or investable. The preparation won’t necessarily be the same, but there will be common elements. Think about what will increase the value for a buyer or an investor; and what will disincentivise.
Looking a couple of years ahead is great if you can do it, and it may well be worth engaging a corporate finance specialist (usually either a niche CF house, or the CF team at a good firm of accountants) to look at current and potential value, and how to maximise that. This might then lead to some preparatory restructuring of shareholdings (especially important to consider small, historical shareholding which could usefully be rationalised). It’ll be worth looking at the structure of the employment side – is the company over-reliant on contractors? – would you be better having an employee base, and to help that, would share options be the right way of retaining and incentivising key employees?
Founders should think about their own positions; they are likely to be valuable to investors, but for buyers, they might be required only for a short time; so a buyer will value a situation where the business has weaned itself off reliance on founders or major shareholders.
It is also going to be essential to make sure the business has its house in order. A buyer or investor will be unimpressed by a business without proper commercial contracts, and which has signed up to whatever customers have put in front of them. Not only might that mean that the business has inadvertently given away crucial rights (such as ownership or the right to use intellectual property); it might be seen as symptomatic of a wider lack of rigour in tying down the company’s value and assets. The same will be true also for incomplete employment contracts, missing share registers and outdated entries.
Often an acquirer of a business will want to move premises, possibly closing down a specific location or office. What is valuable and convenient to the founders might not be so to a buyer; so ensuring that lease and other documentation is in place, signed, and gives the right flexibility will be important there. A buyer will need to know what costs and locations it’s tied to.
Investment and buying a business are risky – increasingly, the risk can be a regulatory risk. No-one used to worry too much what mailing lists a company had, where the personal data it holds came from, or what rights there were to collect, use or retain data. Now the fines and reputational damage of getting this wrong are such that these elements will be finely examined. The time to get this right isn’t when they are being examined – but when the data is being collected or planned to be collected.
Investors and buyers will run a details due diligence process – so it is worth working through, at an early stage, what that process would look like and what it could uncover; then getting those things fixed.
You may only have one shot at maximising the value, especially from a sale; having everything ready and in order will give true value. Plan ahead.