1. When an exit plan appears in your strategy
Martin Brown, founder of business advisors Elephants Child, says: “We would always advocate that a company should have an ongoing business strategy that encompasses a three- to five-year timeline. Typically, entrepreneurs start up a company because they have a passion to achieve something and, initially at least, they just think about growing their business and doing the right thing by their customers.
“However, when a business leader includes exit options in their business strategy, they start to think about potential buyers and what it's going to take to maximise the chances of selling at top value. It’s the most obvious sign of a change in approach to how they think about and work on the business and their leadership.”
2. When market changes could reduce your business’s value
Another telltale sign that it might be time for an entrepreneur to exit is that the business isn’t performing as well as it once did. Clearly, a struggling company won’t attract a high sale price so entrepreneurs could opt to exit while their company still has value.
Martin advises that business leaders should always keep an eye on competitors and changing market conditions and how that is affecting the value of their company. “Business leaders can get locked into what they've got and they can drift strategically into a situation where a product or service that was making them a lot of money suddenly has no relevance and is making losses.
“British Home Stores and Woolworths are examples of businesses that didn't move with the pace of changing technology and consumer behaviour, ending up looking a bit like dinosaurs.”
3. When you receive an unsolicited offer
Sometimes SMEs and start-ups will receive unsolicited approaches to sell – an offer from another company or from a broker. Says Martin: “It can be flattering and you can get seduced by this kind of opportunistic approach. But it will certainly sow a seed in the mind of an entrepreneur and get them thinking about what it would take to create value in the business.”
However, he sounds a note of warning: “Some opportunistic approaches can deliver a good deal but bear in mind when using a broker that, despite what they might promise, a siginifcant number will fail to sell because they are not market-ready.”
4. When the economy is doing well
A business would want to sell when the economic cycle is in its favour, so the timing (and a bit of luck) is key to maximising value. If a business leader believes the wider economic cycle is peaking, it can be a trigger to exit instead of waiting a number of years for the next peak. “The clues at a macro level include the FTSE’s performance, employment figures and indicators like supply chain confidence and the demand for commodities.
“At a more micro level, an entrepreneur might look to clues in their own sector. For example, at the moment there's lots of consolidation activity – mergers and acquisitions – in the IT and telecoms sector, so there’s a good chance of maximising value for a company operating in that field.”
5. When other things in your life take priority
Ill health or death in the family, divorce, age and succession - or simply a flagging passion for the business - can all be triggers for exit. “Any of these things can get an entrepreneur thinking about how they’ve made sacrifices and it’s now time to cash in and enjoy the value they've created.”
Entrepreneur Andy Hollands, a business partner at Elephant’s Child, sold a company he helped to create for £6.4m in 2001. Looking back, he remembers a number of clues it was time to exit the business, which supplied and serviced mains-fed drinking water dispensers.
“After a couple years we developed a plan to sell so it was definitely part of our strategy. Competition then began to increase and prices were squeezed. The pressure on the directors led to relationships getting strained. All of that meant sale was the right move.”
Exit strategies may include a referral to a service that is separate and distinct to those offered by St. James’s Place.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.