How to prepare your consumer business for exit

Selling your business is a major undertaking. Go into it unprepared and you risk a lot of frustration, and leaving money on the table. Buyers are selective about what they acquire, and thorough in due diligence.

That's why the sooner you start preparing, the better. At Nextoria, we like to help founders plan their exit as early as possible, so they're ready when the time comes.

Put some time and energy into the process if you are about to exit your business. There is a lot to learn before entering that process.

Johan HallenbyGo North, at our e-Retail Fest panel on aggregators

Step 1 · Now

Fix what you control

IP, operations, suppliers and finances.

Step 2 · Ongoing

Track your margins

Product by product, channel by channel.

Step 3 · Ongoing

Watch the market

Who is buying, and when.

Step 4 · Before you start

Set a clear goal

Why you're selling, and what you want from it.

1. Take care of what you can control now

Whether you plan to sell in three months or three years, there are steps you can take right now to be as ready as possible. It's always better to sort things out today than to scramble at the last minute. It's never too early to start on these:

• Intellectual property. Securing trademarks, patents and exclusivity agreements in your current and future markets protects your brand and strengthens its value to buyers. Make sure the company also owns the work others did for it: designs, photos, packaging and code made by agencies, freelancers or staff.
• Operations. Clear standard operating procedures (SOPs) are a big asset when the business changes hands, and they help you run it more efficiently in the meantime. Our clients almost always find ways to improve just by writing them down. Buyers also want to see a business that doesn't depend on you for every decision and every relationship.
• Suppliers. Put your key supplier terms in writing, have a backup for your critical products, and check that your agreements don't end if the company changes owner.
• Finances. Messy financial statements will hurt your ability to sell. Getting them in order early makes it much easier to attract buyers and get through due diligence, and gives you a clear view of the levers that can raise your valuation. You don't need to become an accounting expert: a good bookkeeper can do this for you. Read Why accrual accounting is key for a successful exit and our 5 accounting tips for more.

These steps can seem daunting, but there's good news: whatever happens, each of them also helps you run the business better. It's a win-win.

2. Track and optimise your performance

Your exit plans can also shape your growth strategy. The decisions you make when you plan to keep your brand for ten years may be different from the ones you make when you plan to sell in the next one or two, and it's important to understand those trade-offs.

Growing sales matters, but how does it affect your profitability? How do your different revenue streams perform, by customer type, by region, by channel? Are your resources better spent growing a product that makes 5% of your sales, or would you add more profit by cutting returns on your best-seller? Knowing the answers is how you get the most value out of your business.

A few common opportunities that tracking the right numbers reveals:

• Products that drag down your margins. Selling your business is like running a marathon: you want to peak as the big day approaches. In M&A terms, that means making your product mix as profitable as possible heading into a sale. We often see products that grow sales but bring margins down. Tracking sales and profit product by product helps you decide where to invest.
• High return rates. These can be a major red flag for buyers, especially if they come from product quality: if so, fix it as soon as you can. Often, though, returns come from customers not understanding what they bought. Clearer product pages, packaging or instructions (a demonstration video, for example) can cut returns significantly.
• Too much reliance on one channel. If one retailer, one marketplace such as Amazon, or one ad channel brings in most of your sales, buyers will see it as a risk. Spreading your sales lowers it.
• Old or slow-moving stock. Stock that doesn't sell ties up cash, and buyers won't pay full value for it. Clear it before the sale rather than during due diligence.

There's a lot to keep track of in a fast-growing business, so you need an easy way to follow your performance and make informed decisions. Without one, tracking everything becomes a burden and takes time away from running the business.

When you sell, you want your numbers to speak for themselves. Even when there's a simple explanation you can share with buyers, the less you have to explain, the better.

3. Keep an eye on the market

The right exit isn't only about optimising your business. It's also about finding the right buyer at the right time. Strategic buyers, private equity funds, aggregators and other investors all have different goals when they acquire a brand. Many factors decide the right fit, and being in the right place at the right time can make all the difference.

We help founders plan their exit over the right time frame, but we also keep a close eye on the market and use our network to spot the right opportunity when it comes. If a buyer is looking for an acquisition in your niche, you could find yourself in a serious sale process well before you planned. That happens more often than you might think, and it's another reason to have your business in order as early as possible. A confidential market test is one way to find out what buyers think before you commit: see Testing the market: a case study.

4. Set yourself a clear goal

If you're thinking about an exit, you've already done the hardest part: building a successful business. Take a moment to appreciate the work it took to get here, and think about what you want next.

Ask yourself why you want to sell. Do you want to sell and move on, or find a partner who helps the company keep growing while you focus on the parts of the job you enjoy? What number do you want to achieve, and why? Would you accept a more conservative price to exit quickly, or do you want to do everything you can to maximise the value of your company? And what role do you want after the sale: how long you'd stay on, and whether you'd take part of the price later, through an earn-out or by keeping a stake?

You may not get everything you want, but thinking through each of these questions before you start lets you build a strategy that matches your goals.

Last updated April 2023 · Written by Aïda Aït-Ahmed, Co-Founder, Nextoria