exit strategy 2021-06-29

How to Build a Multimillion Dollar Enterprise - Then Sell It

In an exclusive interview with Franchise India, Suraj Malik, M&A Partner, BDO India LLP, and Ashutosh Jain, MD of Emerys Holding Pvt Ltd, highlighted the importance of succession plans and exit strategies in the business.

By Content Writer
How to Build a Multimillion Dollar Enterprise - Then Sell It

A business does not end just by setting up the operations; it needs preservation and unlocking and an exit strategy too.

In an exclusive interview with Franchise India, Suraj Malik, M&A Partner, BDO India LLP, and Ashutosh Jain, MD of Emerys Holding Pvt Ltd, threw light on the key strategies to preserve, pivot and profit, especially for SMEs. They also highlighted the importance of succession plans and exit strategies in the business.

USP Crafting

USP is a very important part of a business. USP is what the business can do best to match the customer needs which the competition cannot do. If an enterprise only keeps matching and diversifying in line with the competition, it is not going to be profitable. It will be a waste of resources, time, and effort because it might not fulfill the customer's needs. Where the customer needs are met by competition, the aim of the business should be to get this growth avenue closer to the enterprise’s USP to win. One important aspect in a business is to keep a track of the strengths and weaknesses of the firm that takes you a long way in finding the USP.

Finding the Niche

Finding a niche for a business keeps a business alive and thriving. It is the winner’s edge for a business. Crafting the USP takes you closer to finding your niche. It’s a continuous process. Niche is finding the strengths. Today, the jack of all trades doesn’t work. The need is to identify and mark the niche. Articulate the USP in a simple and understandable manner for the customers and stakeholders, who will, in turn, believe in it. Only when the market perceives you to be an expert in a particular aspect, then you will achieve expert status. Another point that holds all these factors together is trust and sustainability. Building trust will bind things together and the business will sustain.

Rescript your Success in a New Paradigm

‘What worked till now, will not work till tomorrow’ and that is the reason rescript is needed. Success is not a straight line. It has lots of ups and downs. While rescript in a business, be realistic and work on it.

Every business needs to rescript at a certain point. You need to consider the three A’s:

Accept: This means to accept that there is change

Analyse: To analyse what can be done

Adapt: To modify as per the needs

Preserve, Pivot and Profit

Capital Structure: There are many parameters under the capital structure but one of the most important one is the free cash flow. Free cash flow is the money generated after meeting the operational expenses and commitments. Profit is different from free cash flow. Profit is money earned by a business whereas free cash flow is money left with the business after profit is reinvested whether in the form of fixed assets or working capital.

Alignment of Efforts towards Mission and Vision: One should not get lost from the vision and mission of the enterprise in growth. This will lead to confusion and distress.

Operational Efficiencies: It is best when the niche and the USP are co-related.

In the long term, a business needs continuity and growth. Statistics prove that for family-owned businesses, 75% of the businesses seize to exist from 1st generation to 2nd because the succession is not planned and by the 3rd generation only 3% remain. A succession plan helps in a successful exit.

Small and Medium enterprises are successful because of many reasons:

- The owner’s lifestyle depends on the profit from the business and therefore he/she gives in full time and effort to the business.

- The number of people working is less. The owner knows almost all his/her staff and can maintain a personal relationship with the staff and the customers.

- They have small operations as compared to the large companies and hence can sell small batches to the customers.

- Quick decisions could be taken because there are a limited number of stakeholders.

But if this wealth is not preserved then it won’t last. It is important to preserve else it is going to go back to zero where it started. There is a requirement for a plan and roadmap for wealth preservation as well as building legacy. This is pivotal because it doesn’t get automatically sorted and not everyone is the same. Leadership succession differs and there might be a need to develop more capabilities. Institutionalising processes and aligning the structure with new regulations and tax laws are necessary.

Finally, money cannot buy harmony. To continue business across generations, a succession plan is needed and where there is no successor, a planned exit strategy is important to unlock and monetize value.

Right Time of Exit

When you realize you need to exit, it is time to exit. Exit planning is the process of preparing your business to convert equity value to real hard cash.

Some signs that indicate exit are:

  • There is no one to run the business
  • Owner is close to exhausting their individual energy and bandwidth
  • Business demands more sustainability and growth
  • Personal change of owner’s health, relocation, etc.

An exit plan is a time-consuming process that requires commitment. First, identify the current state of the business and the size and profit and whether it is exit able. Next is deciding on the exit goal and strategy to achieve it. The third is to execute the strategy and finally strategizing the sale.

Challenges in Exit

- SME’s are small and small companies are usually not in demand by the larger companies

- Nature of Business: The absence of strategic differentiators makes it difficult to exit

- Lack of transparency in finances and records

- Low usage of technology

- There are limited benchmarks to establish value

 

Edited By: Vaishnavi Gupta

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