Planning your exit

March 21, 2011Post by Laura Humphreys

More from my night at the Institute of Directors, this time my notes from Matt Kenealy. Matt was a co-founder of Axon Computer Systems in 1986.  He was the majority shareholder when it sold to Integral Technology Group in May 2010.  Here are my out takes from Matt’s 5 minute talk.  As always with the disclaimer that these are my notes and as accurate as can be from trying to read my own writing nearly a week later!

1. You must carefully plan your exit

2. It takes a lot longer than you think it will

3. Allow 2 -4 years to work through your eventual exit as an established business

4. The thing that takes the longest is making the business independent of you… this is the critical factor for a buyer

5. Most exits involve some sort of earn out – this is what typically takes you longer to exit… it can be a dismal few years of being in a no man’s land when you are still working for a company no longer owned by you (in my next blog I’ll tell you the deal I struck when I sold, which made my 3 years earn out pretty exciting).

6. The role of a Board is to help the owner maximise the value of the business.

7.  Value is made up of:  price; the deal (a simple transaction/earn out terms);mimimised risk (what comes back to bite you after you are gone) and other values, such as how you feel you want the business to carry on after you are gone, if this is important to you.

8.  An ‘advisory board’ can be a good way for a small business to get the guidance it needs. (Here’s the wikipedia definition of an advisory board … I thought you might be wondering: An advisory board is a body that advises the board of directors and management of a corporation but does not have authority to vote on corporate matters, nor a legalfiduciary responsibility.  Or in other words: An advisory board is an informal group of local business professionals who can help you run your business better).  The key point is that you can feel more in control with an advisory board and may find it easier to pick the people you really want.

9.  Just having your accountant or lawyer is not sufficient for your Board.  You need a sensible, proven business person with both Directorship and industrial/business relevant experience.

10.  The owner should be exiting before sale (4 years prior to exit Matt left the day to day running of the business).

11.  The company should start acting like a much bigger company early on the piece, grooming itself for the business it will be when it sells.

12.  Should think early on ‘who will buy us’.  Identify your buyer and build your business to be attractive to them.

Great tips based on real life experience.  No wonder I enjoyed the evening so much.