This month’s article on cash flow management for entrepreneurs and small business owners highlights the importance of having a flexible but detailed exit strategy for when the time inevitably comes to part ways with your business.
This is the twelfth part in our ongoing series on cash flow management, you can read the previous articles here:
- Part One: Cash Flow Basics
- Part Two: Failure to Plan is Planning to Fail
- Part Three: Those Who Shout Loudest Get Paid First
- Part Four: Must Have or Lust Have
- Part Five: Working Capital – Make it Work for You
- Part Six: Shelter Your Assets
- Part Seven: You’ve Got to Innovate to Accumulate
- Part Eight: Treat Your Suppliers Like a Bank
- Part Nine: Take Stock of the Situation
- Part Ten: Balance the Bank
- Part Eleven: Price to Sell
Part Twelve: Plan Your Escape Route
If you feel you’ve achieved everything you can or want to in your current business, the timing might be right to make your exit. Whether you plan to retire, sell the business to a third party or complete a management buy-out, it’s essential that the business’s finances are in order before you start the exit process.
Your best assets are liquid: cash, and anything that can be quickly and easily converted into cash, such as accounts receivable; inventory; investments; land; buildings; equipment, etc.
Consider converting as much as you can into ‘money in the bank’ before getting the valuers in. Buyers prefer to see a business with a healthy bank balance, a strong client list and minimal amounts of stock and equipment. In fact, you might even find a buyer who is more interested in your intellectual property than physical belongings, as they may want to choose their own machinery and premises. They may even be planning to move the business away from your current location, whether that’s just transferring it from your offices in Leeds to a new address in Bradford, or further afield, or even possibly abroad.
Streamline the business as much as you can to create a more attractive profile for potential buyers and boost your company’s value and saleability.
Sell the Business
The decision to leave your business is a big one, but when it’s time to part ways you’ll want to do so quickly and cleanly. This is why you should put every effort into preparing the business for sale by cashing it its assets and making it as attractive to buyers as possible.
Selling will allow a new owner with their own sources of funding to take the reins, giving you the freedom to try something new or enjoy your retirement while the company benefits from an injection of cash and some fresh ideas.
Merge for Economies of Scale
Alternatively, you could choose to merge rather than sell, if you’re not quite ready to bid farewell to the business you started from scratch and built from the ground up.
Economies of scale, in microeconomics, are the cost advantages businesses obtain by scaling the operation, reducing the cost per unit of output as the scale increases. In layman’s terms, you save money in the long run by manufacturing more products and providing more services per hour, as your staff are already working and your machinery is already up and running.
Scaling up to a larger operation may sound like a daunting prospect, but one relatively simple way to scale up is to merge with a competitor. A merger, unlike an acquisition, results in a whole new business comprised of two or more companies, often with a new name, such as Disney Pixar or KPMG.
In the same way you’d prepare a detailed and thorough profile of your business when getting ready to sell, and consider the suitability of any interested parties, you’ll want to do the same thing for a merger. In addition, you should do some in depth competitor research and make a short list of those you think would be open to the idea. Do your due diligence, identify your top three potential merges and approach them tentatively with a well-written letter.
At worst, you won’t receive a response. At best, you could find your perfect fit and give your business a chance to survive and even thrive when it may have been lost to terminal cash flow problems.
The next and final post in our cash flow management series, Cash is King, will bring together all of the cash flow management techniques we’ve discussed in these articles and give you a broad view of your next steps.
Don’t want to wait? Click here to get our guide, Happiness is a Positive Cash Flow and read all our tips and advice for achieving and maintaining a positive cash flow.
Get in touch to discuss your individual circumstances and get some independent, impartial advice on your business’s financial health.