Selling your food or beverage business? 5 steps for a successful exit plan
Selling your food or beverage processing business isn’t a decision to take lightly or quickly, and it can take years to set up the sale.
The ideal time to begin an exit plan is three to four years before the sale.
According to Brent Vanparys, a transition specialist with BDO, the ideal time to begin an exit plan is three to four years before the sale. Including the exit plan in the overall business plan is also a best management practice.
During those three to four years, there are several steps to ensure your food and beverage processing business is ready to move to the next owner.
1. Get the team onboard
The first step is to make sure the goals of all members of the ownership team and stakeholders are aligned.
Beginning the process several years in advance, or including it with your business plan, allows the owners to become emotionally, economically and mentally prepared for the next stage of their lives while ensuring that all the details are in place for a successful sale.
“Setting your overall post-exit objectives, including deciding whether you will transfer internally or sell to a third party, will set the tone for the type of plan you need to put into place before selling,” says Eric Bosveld, president of B&A Corporate Advisors.
2. Determine value
Food and beverage operations include several value-added intangibles, including intellectual property, recipes, the management team and a loyal customer base.
“One of the most valued intangibles in the food space is the ability to develop and launch new products consistently and successfully,” Bosveld says. “It is a dynamic industry with continually shifting consumer’s needs.”
However, failing to demonstrate how these intangibles generate profit can shift a buyer’s perception from seeing them as a value-added benefit to becoming a potential risk.
For example, clarify that the secret recipe for your benchmark product is included with the sale, how much the product generates in sales, and the loyal customer base the product helped build. Otherwise, potential buyers may turn away, thinking that knowledge is leaving with you.
3. Think like a buyer
Before putting your company on the market, review each component as if you were the buyer.
“Prior to selling, take the time to tie up any loose ends, including eliminating redundant assets and ensuring that all items are properly documented, and then invest in getting audited statements, at least two years, but ideally four,” Bosveld says.
Sellers need to look at all aspects of the business, stresses Vanparys, including the management team, human resources, internal operations, accounting and cyber security, to ensure that it operates at an optimal level.
4. Make yourself redundant
Companies led by entrepreneurs tend to rely heavily on the operation’s leader. These leaders know the ins and outs of their business, including having a detailed understanding of their business, customer needs and their employees. During a sale of the company, that approach could quickly be a liability if a business is highly dependent on the owners’ involvement.
“I try to encourage people to begin transitioning the structure of responsibilities, which includes delegating more and being less available, at least a year, ideally two years in advance,” Bosveld says.
This process will also provide insight into which employees show leadership potential, providing the buyer with the added reassurance that they have a strong team that can continue to carry the business forward.
5. Think outside the job
Even if you’ve included your exit plan with your business plan since your venture started, it’s important not to discount the potential emotional toll of transitioning out of your business.
“A lot of the times, the sellers are identified by their business, with their self-esteem connected to their business’s success,” Vanparys says. “This can make leaving their business particularly challenging.”
Anything a seller can do to plan for the next stage in their lives will help make the transition smooth. For some companies, this may involve hiring a personal coach to help prepare both the ownership group and their families for the rigours of selling, while also helping them set goals for the future.
“The transition from a business owner who works 60 plus hours a week to a leisure lifestyle can be challenging both for the individual and their family,” Vanparys says. “It’s important to communicate with your family as much as possible to help understand what that next stage in life may look like.”
Avoid these 5 seller pitfalls
- Failing to agree on sale objectives and expectations among owners and stakeholders.
- Launching into the sale process too quickly, potentially impacting business value.
- Not letting go of day-to-day operations, creating an infrastructure that depends on your involvement.
- Over-estimating the value of the business.
- Failing to connect the intangible items to profit generation.
Article by: Anne-Marie Hardie