The state of the economy is putting great pressure on the management of businesses, thereby leaving little time for planning for the future.
However, in the current market conditions, whatever your size, it's even more important to focus on your strategy if you want to sell a business.
Deciding on the next step can be very difficult, particularly when you have the day-to-day jobs to attend to.
A strategic options review might be the tool you need to help you decide on your future strategy. This is a rigorous analysis of the business that should identify a number of areas where improvements can boost the business today and increase the longer-term chances of a profitable sale, if this is an option you are considering.
How do you undertake a strategic options review?
The starting point for any review is defining what you want to achieve. Businesses are unique, dynamic entities and cannot be treated to a one-size-fits-all approach.
The starting point for any review is defining what you want to achieve
Therefore the specifics of each review undertaken should be different. However, they should all start from the same point: a full analysis and understanding of shareholder objectives.
These objectives are not always purely financial; there are many personal objectives that need to be understood and considered to develop a plan.
From here the review should move onto an information-gathering stage. This must be both internally and externally focused, identifying the key influence third parties (competitors, customers, suppliers and potential buyers) have on the "what, why, when and how" of realising value from a business.
In terms of output, a quality review will deliver an opinion of the "what, why, when and how" that best fits your objectives. This opinion will be based on detailed and rigorous analysis.
What does this mean in reality?
At its simplest, a strategic options review will help an owner decide whether the best option is to hold, invest and grow the business for a future sale or to sell, fully or partially, in the short term.
Therefore a review will produce a clear picture of the appetite of trade buyers and private-equity investors for your business, and the value and deal structures achievable. It will also produce a detailed financial returns analysis of the hold, invest and grow alternative, and of selling some of the equity (or a partial sale) to a third party. This third party would typically be a private-equity investor, although constructing such deals with corporates can also be achieved.
The preferred option, or in some cases, options, then has a defined action plan drawn up to address the key issues from the review and ensure delivery of shareholder objectives.
For example, in a recent transaction the price was not the only consideration for the shareholders. In this case, the right solution was a sale to management as this satisfied all shareholder objectives: realising capital value, leaving the business in safe hands and allowing the management team to take the business to the next level.
Don't focus on internal issues
In assessing options and timings, and then defining an action plan, owners and advisers can often focus too much on internal financial detail, such as profit trend analysis and balance sheet strength.
However, it's the prevailing climate in the wider world in terms of the overall economy and future predictions for your market that determines whether, and at what value, buyers buy.
In addition, the review will highlight the importance of building your external awareness and the external profile of your business, in terms of press profile in the trade and national press and other marketing communications such as your website. Questions should be asked if your PR and website are giving a positive image of your company; if not this needs to be addressed.
How can I use a strategic review?
A review can deliver real value in a number of ways.
It may highlight the next likely buyer of their business and when their appetite is at its peak. Such a situation could result in you pursuing a sale much earlier than you anticipated to maximise the return for shareholders.
In a recent transaction involving a manufacturer, the shareholders were not wedded to an immediate sale of the business as there were areas they wanted to focus on internally. However, the strategic review highlighted a number of trade buyers actively looking for a foothold in their market making it the right time to sell the business.
While there were still areas the business wanted to address internally, which ultimately would have improved the bottom-line profit, the business has now been sold to an overseas acquirer for a strategic price that far exceeded the shareholders' expectations.
Many issues and questions arising from a review will be of an internal nature. These will range from management structure, operational facilities and systems to the more granular issues such as property leases, employee contracts and environmental practices.
Action may need to be taken to address any issues identified by the review before they impact on the value of your business.
A strategic options review will ask a number of questions of a business and its shareholders and deliver a route map towards realising maximum value. It will help you make the right decision for both you and your business and the benefits you can gain from such an exercise should not be underestimated.
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