Home Articles Grooming your business for exit

Grooming your business for exit



Pointers for maximising value when selling your business

Getting the best price when selling your company is a little like selling a property or vehicle – you should groom your business before you exit and consider who will make the best potential buyer. With forethought and planning you can attract more purchasers and maximise the sale price.


Identify the risks new owners might perceive in your business and manage them. This will enable you to cast your net more widely for potential buyers and increase their understanding of your business’ value.

One of the ways to value a business is by a simple equation: earnings x multiple = value. The multiple is the variable you are trying to influence through grooming and is a function of perceived growth and perceived risk. Although it’s likely to take some time, grooming will help to reduce risk and increase the multiple.

Once you have determined what you want to achieve through grooming, you can set out the steps needed to get your business ready for sale. Some points are easier to achieve than others. For example, if there is a risk that the business’ clients will be disrupted by a sale, it may be necessary to exit your business more gradually while preparing someone else to take over.


Thinking about the best potential buyers for your business and the way you sell it is an essential part of the grooming process. There are three main ways of selling: trade sale, sale to management or stock exchange listing.

Trade Sale

Selling your company to a competitor or complementary business is often the best way to maximise its value for reasonable sales costs.

Benefits: Trade buyers are often willing to pay a higher price as they understand the standalone value of the business and may pay extra for potential synergy gains by linking your company with their operations. These might include cutting costs by sharing back-office functions and opportunities to increase sales by selling your products in wider markets.

Risks: Trade sales generally require the release of confidential information to prospective buyers, which may be too risky for some sellers. Purchasers may also wish to change the business fundamentally. For example, potential buyers may want the business merely for its customers or brand name and have no need for its management or employees. You may be forced to decide between the highest price and a lower one that protects your employees.

Private Equity

Management buy-outs and buy-ins (MBOs and MBIs) are valid sales strategies with considerable advantages, including investment flexibility and ability to protect employee interests.

In an MBO, the company’s executive team and outside financiers purchase your stake, while in an MBI, an outside management team leads the purchase. In both methods, most of the funding is provided by a mix of bank debt and private equity from a third-party investor.

MBOs and MBIs best suit relatively stable businesses with consistent low-risk growth opportunities. Banks and private equity financiers are unlikely to finance riskier hightechnology or high-growth companies.

A major attraction of private equity is the flexibility it permits in how much you sell.

Private Equity

Floating your business on the share market through an initial public offering (IPO) may get a higher price for your business by tapping large, liquid equity markets, but comes with considerable costs and risks.

IPO’s suit companies that:

  • Have existing managers and owners who wish to stay involved in the business
  • Have high growth and need additional capital for expansion and acquisitions
  • Need to motivate and attract managers and directors
  • Wish to raise their public profile
  • Have a significant capitalisation to ensure appropriate attention of institutional investors (preferable to have a market value in excess of $50 million after the float).

Whether you’re making a clean break or are exiting by stages from your company, selling a business is not only about getting the right price but managing the change in your lifestyle. Keep your personal goals in plain sight as you run through the options.

Clever Companies do not stand still. They are dynamic and constantly challenge the status quo. Our Private Client Service team is committed to helping these private businesses make the most of their opportunities. To learn more about the topic covered in this article please visit our website or call us.

Karen Crawford: (03) 8603 3226