Exit is a word that has so much meaning for an entrepreneur. It can be the realisation of a dream, sometimes a culmination of a lifetime’s work and recognition of success and the struggle that preceded. Many an entrepreneur will start a business with a view to an exit.
This is not necessarily a good plan, as exits are notoriously difficult to plan or predict, and it is generally best to focus on building a successful and robust business. An exit could be part of succession planning, or it could be the only way to protect a business in the event of a falling out of partners. An exit can take many forms, but in short it is an event that allows the entrepreneur to monetise his or her years of toil and risk-taking.
There is little doubt that it is easier to sell a business than to build it, but a sale can present its own challenges. An exit takes the entrepreneur from a mastered environment to a different world, which may require a completely new perspective and skill set. It is difficult for business owners to appreciate how distracting and intense a sale process will be, and while the lawyer and other advisers will try and prepare a seller for the task ahead, invariably it is only when the transaction finally completes that the seller accepts the enormity of what has been done. Because of these distractions, it is important that the process has momentum and is driven – this is often the role of the corporate financier and this role should not be underestimated.
The sale process will more often than not have a negative consequence on the business and needs to be truncated wherever possible. This is why we work through the night! A key part of a sale is the allocation of risk. This is, to a certain extent, amplified by lack of legislation in relation to the sale of shares in private companies. If you buy a car and the wheels fall off, the law protects you. The same will apply to most other goods or services.
However, if you buy a company and “the wheels fall off,” the law provides very limited recourse. As a result, a buyer will, through contract, look to pass this risk to the seller, and a key role of the lawyer acting for the seller is to ensure that the risk to be accepted by a seller is reasonable and proportionate, and the restrictions imposed are not too onerous.
This can cause frustration as the seller wants to focus on the price, which can be just two lines in a 100 page document. The lawyer has to focus the seller’s attention on the risk, which is far less exciting, but if allocated properly, will ensure the seller gets to enjoy the fruits of his or her labour long after the completion celebrations have
For most entrepreneurs an exit may never happen. For the very talented and lucky few it is likely to happen only once. So while the sale process may seem daunting, with new advisers, new jargon and new pressures, it should be embraced and as much as possible, enjoyed.