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8 signs your business is exit ready

Almost as soon as a business secures investment, all eyes turn to getting ready for an exit – even if it’s not expected to happen in the immediate future. Portfolio Director Robin Lincoln explains some of the most important things for a business to get right before an exit can happen.
We’re often asked the best way to prepare a business for a potential future sale. Of course, the route to an exit will look different for every company. But here are eight important signs that your business might be exit-ready.

1. You know who your likely buyers are, and they know who you are. You’ve met them in the flesh, you understand their hierarchy, and you have some sort of access to a decision-maker in the c-suite, the finance team, or the M&A/business development department.

2. You know the strategic attributes of your business that acquirers or investors find most attractive. You understand how buyers will value your business, and you’ve been carefully measuring the right valuation metrics for some time.

3. You have prepared and rehearsed a great pitch-deck, and you have been using it for investor and business development meetings for a while. When you meet someone new, you can use your pitch-deck with them straight away.

4. You have a financial model for the business, updated quarterly to reflect latest position. It is realistic (no hockey sticks please!) but enticing. It is easy to understand the unit economics of the business.

5. You know the best corporate finance advisers in your sector and which ones are most relevant for a business of your size. They know you and are pitching for your business. You haven’t formally engaged anyone as you like to keep your options open. You also know which corporate lawyers you will use, who are unlikely to be your day-to-day company lawyers.

6. You have information ready for a data room. You have removed any material, confidential clauses from contracts. Liabilities have been settled. Tax records are up to date and transparent. Change of control clauses or pre-emption/right-of-first-refusal clauses have been avoided or renegotiated away.

7. You have reviewed the capital structure of the business to check that you can deliver a sale and that interests are aligned. You know a realistic valuation range, and you understand what different valuations would mean for each of the different debt and equity classes. If you discovered that there are misaligned interests at sensible valuation scenarios, which might lead to shareholders blocking a sale, you have renegotiated the capital structure and incentives (including management incentives) to fix the problem.

8. Finally, you have carefully considered what an exit means emotionally for staff and stakeholders. How will you communicate internally? Who will be afraid of losing their job? How are you going to share the proceeds? How can you present this as an opportunity?

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