Are you exit-readiness?

A solid preparation...

Starting to get your company sale-ready five years before the intended transfer date? It might sound excessive, but it certainly isn’t, emphasizes Bouke Tauw. It’s important to have a clear picture in time of your life after the sale of your business. Consider—possibly together with a financial planner—what you need to live comfortably and to what extent the current value of your business meets that. This gives you better insight into how long you need to continue as an entrepreneur to reach your goals.

Internal or external transfer

Another question that becomes relevant at this stage is: to whom do you want to sell the company? Will it be a strategic buyer who can take the business to the next level? Or do you prefer to transfer the business to a family member or someone within the current management? Perhaps you assume a son or daughter will take over, but doubts arise. What’s wise at this point is to start the conversation—possibly with the support of a trusted advisor or confidant—and for all parties to express their wishes. To what extent do you want to remain involved with the company after the sale?

Tax transfer

About five to two years before the intended transfer, it is essential to consider which business structure is optimal. For example, are you planning to sell your company with or without the real estate? Bouke advises to investigate in good time which business structure is most advantageous from a tax perspective. This structure has fiscal implications that are important at the settlement stage. Don’t wait until the final year before the transfer to address these matters, to avoid potentially paying unnecessary taxes.

Change of control

It is also important to look at contractual dependencies. Larger clients often stipulate that a contract can be terminated if ownership of the company changes. With existing contracts, there is usually little you can do; the buyer will want comfort that the client will continue the contract after the sale. But especially with contracts you conclude in the few years before the transfer, it’s wise to pay attention to this. A potential buyer who sees such a clause in a contract wants assurance that the client will not terminate the agreement.

Price impact

Other aspects that Bouke stresses should be well arranged well in advance include non-compete and relationship clauses. Make sure these are handled in a timely manner. If your top management team members do not have such clauses in their contracts, this poses a potential risk for the buyer. This could lead to renegotiations of employment terms. Additionally, a buyer might want to meet with your staff early in the process, which may not yet be desirable.

Also, familiarize yourself with new pension schemes or changes due to a new collective labor agreement (CAO). These topics can have significant effects on the sale price.

Broaden your management team (MT)

Think carefully about the composition of your MT. From general management to finance, marketing to HR: the CEO (DGA) is usually involved in many business processes. For business continuity, it’s wise to consider how these responsibilities will be handled once the CEO steps back. It might be prudent to hire, in time, an operational and/or financial director. Again, this makes your company more attractive to buyers. Expanding the MT early also creates more space to make your company sale-ready and to reflect on strategy. Make sure you can take a four-week vacation without any problems.

Consolidation

Also pay close attention to current and future market developments. Consolidation in your sector can be a factor when timing your sale. Do you see a future as a stand-alone company, or do you want to participate in consolidation? Future legislation can also have a huge impact, so your company needs to respond in time.

Environmental considerations are another point. Especially if you own a production company that works with chemicals, it’s wise to conduct a baseline environmental assessment. This reduces the risk of later claims against you. Buyers want certainty that the company isn’t located on contaminated land.

Value drivers

About 3 to 1 year before the intended sale, it is important that you can present the company’s story in numbers. Translate the future outlook as clearly as possible into figures and facts. Which revenues are recurring and which are incidental? What margins do you achieve? With which customers? What does your balance sheet look like and how much working capital does the business need?

A buyer wants clear insight into your current numbers above all. It’s also important that you can support your forecasts. What underlying contracts do you have? And what are the key value drivers for your organization? All this information is extremely important for a potential buyer.

Right Timing

In the year of the sale, Bouke emphasizes the importance of timing the sale well — not during the busy season, for example, and also not just before a widely attended industry trade fair. It is wiser to enter the market shortly after such a fair. No matter how well you handle confidentiality, the chance of your deal’s secrecy being compromised increases otherwise.

Exit Readiness

Bouke stresses once again: think ahead about your exit readiness. Pay attention to potential issues within your company, together with your accountant, tax advisor, and lawyer. In many cases, it’s also wise to have an external M&A specialist review your company and carry out a valuation and “sales readiness” scan. Especially for larger companies, a vendor due diligence process (a thorough audit) can be prudent, where your entire company is critically examined. Such an investigation can be a valuable aid during the sales process.

Enjoy without worries

Good preparation is half the work. Selling your company takes a lot of energy. The better you prepare yourself for this phase, the greater the chance that you will sell your company confidently and smoothly — and truly enjoy the results achieved.

Contact

Come have a conversation with the Rembrandt M\&A team. We understand the questions you face, know the dynamics of the acquisition process, and offer a network full of opportunities. Contact us today to discover what we can do for you in your specific situation.