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Exit strategy

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  • CKhalvashi
    CKhalvashi Posts: 12,134 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 15 July 2013 at 10:16PM
    Pennywise, that's fantastic advice - thank you very much.

    Re using annual turnover/annual profit in the same sentence, it probably reads different from how I meant it. I was asking was it better to use 3 times annual turnover OR 3 times annual profit (though I now know neither is correct!!)

    We use Assets, minus liabilities, plus 3 years profit.

    Again, this is a very rough guide, as we use several 3/4 letter brands, which alone with the decent reputation could be worth £millions alone.

    I was offered €50m for my 20% share in a company with approx €40m t/o, €2.5m profit on last accounts, and €3m of equity. Most of this was based on the 4 letter brand name, which could be valuable in a number of languages. The company in question is the largest music label in the three countries it operates, at just two years old, so the potential to expand into other countries is huge. If we had a 77% market share in the US, we'd easily be worth £billions. The industry, just in the US, is worth £40bn a year.

    Addison Lee sold earlier this year for £300m, which is the same situation; the brand name was worth more than the actual assets, and there's the opportunity to exploit the brand (inter)nationally.

    CK
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  • Thanks for that information CK, very helpful.

    My partner and I met last night to discuss the exit strategy. We are going to put in terms for the following scenarios:

    buying one another out
    selling to another party
    maternity leave
    long term sickness
    short term sickness
    death
    holidays

    Is there anything we have missed out??

    Thanks to all for advice so far.
  • Savvy_Sue
    Savvy_Sue Posts: 47,308 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Paternity leave: don't forget the regs are changing soon so that EITHER parent can take the current period of m/l ... on the same basis as m/l at present. (I hope that makes sense. Clearly if you're both women it makes less sense ... )
    Signature removed for peace of mind
  • CKhalvashi
    CKhalvashi Posts: 12,134 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    Savvy_Sue wrote: »
    Paternity leave: don't forget the regs are changing soon so that EITHER parent can take the current period of m/l ... on the same basis as m/l at present. (I hope that makes sense. Clearly if you're both women it makes less sense ... )

    It makes sense to me.

    We offer 15 months 'parental leave' within our company (I don't know about the legal minimums, as this is the case for our company across the board)

    This can be split between parents/adopted parents of the child, so one parent can take 10 months, and the other 5 months. This is the same regardless of sex of the parents, or whether the relationship is same sex or mixed sex, and irrespective of whether the parents are married.
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  • paddyrg
    paddyrg Posts: 13,543 Forumite
    edited 19 July 2013 at 1:01PM
    Moving to a different area, unequal division of labour, what kinds of things are expensable, what aren't, what happens when you seek extra finance, roles and responsibilities for accounting, etc., joint or several signings for cheques...

    Basically everything! I'd still strongly suggest a shareholding-based structure, otherwise you're in an ugly state if your partner runs up a load of bills and vanishes with the money. It does happen. It stopped a friend's fathers retirement when he discovered his (also a trusted local solicitor) business partner vanished with their retirement money and he had to add another 10 years of practice to repay the debts this guy left.
  • paddyrg wrote: »
    Moving to a different area, unequal division of labour, what kinds of things are expensable, what aren't, what happens when you seek extra finance, roles and responsibilities for accounting, etc., joint or several signings for cheques...

    Basically everything! I'd still strongly suggest a shareholding-based structure, otherwise you're in an ugly state if your partner runs up a load of bills and vanishes with the money. It does happen. It stopped a friend's fathers retirement when he discovered his (also a trusted local solicitor) business partner vanished with their retirement money and he had to add another 10 years of practice to repay the debts this guy left.

    This is a great list - thank you!

    Savvy Sue, we are two women, but I take on board what you say!
  • paulwf
    paulwf Posts: 3,269 Forumite
    Thanks for that information CK, very helpful.

    My partner and I met last night to discuss the exit strategy. We are going to put in terms for the following scenarios:

    buying one another out
    selling to another party
    maternity leave
    long term sickness
    short term sickness
    death
    holidays

    Is there anything we have missed out??

    Thanks to all for advice so far.

    Slightly off topic (but still related) is that you should all make sure you have current Wills. Sorting out what happens to the chunk of the business if someone dies will be easier if there is a Will in place. The business will have enough to sort out with a death of a partner than the business or relatives trying to work out who now owns what.

    Also...talk to the relatives that will be involved. It may not be wise to just pass company shares on to the next of kin if they don't want them!
  • paulwf wrote: »
    Slightly off topic (but still related) is that you should all make sure you have current Wills. Sorting out what happens to the chunk of the business if someone dies will be easier if there is a Will in place. The business will have enough to sort out with a death of a partner than the business or relatives trying to work out who now owns what.

    Also...talk to the relatives that will be involved. It may not be wise to just pass company shares on to the next of kin if they don't want them!

    A VERY good point, thank you.
  • Brassedoff
    Brassedoff Posts: 1,217 Forumite
    edited 25 July 2013 at 5:16AM
    My business partner and I have an investor lined up for our start-up business. Everything is going well, his only concerns are about my partner and I falling out - he believes partnerships always fail!

    A friend of mine suggests we have an exit strategy in our business plan which focusses on what should happen if one of us wants to leave. He also thinks we should mention what would happen should one of us has a period of illness etc.

    I just wondered if anyone had any tips, what kind of things should we mention and how on earth do we value now what the business might be worth 5/10/20 years down the line for one of us to buy the other out?!!

    Read 1. Then read 2.

    1. Exit strategy? Are you confusing it with a shareholders agreement with a fall out clause?

    Exit stratergies are where directors/shareholders or investors have an agreed fall out point that triggers the sale of the product/company or IP to a third party or to one of the remaining partners.

    In it, you will frame a remedy while the shareholders/directors are setting out and are in love. The trigger will be a long range of events or occurrences. You will have a fault/no fault track. You will have an agreed price or percentage at this point set for the whole of the business/shares. At this point, you have no value, but if you own 50% each, the sales is for 50%. I have read some silly valuation methods on here. You need to agree who sets the value, on what basis and method and sign to say you agree to it. If not, you will have to use the people the courts now appoint and that's Chartered Institute of Arbitrators. As with all Arbitration, you have to agree to abide by the ruling or lose all your dish on solicitors fee's!

    Your shareholders agreement will also have hours of work, holiday etc, you know the norm. It will have triggers based not on what you may want, but on case law. For example, a partner away from a business for two years may be forcibly brought out by the other at the price of the business at the start of their leave. Look, it's messy, get professional help, that why I charge so much!

    None of the above is anything to do with the investor. You just have to get the agreement framed and show them a copy.

    An exit strategy is something you would frame a year into the business unless you have invented the next "gizmo". It sets out the process of disposing of the business, the process of how it will be sold and by who (the professional body)

    The third one is the Investors agreement. Do not underestimate the importance of this document. It sets out the rights and powers of the investor. Do they receive a copy of the monthly management accounts or do they get a copy annually? What rights do they save to enter the business premises. Do they have a charge over the assets and chattels? Or, have they got PG's from you (be careful there), or what security do they have?

    I am going to say it, but you need advice of a professional if the investment is substantial or you know already that you have a customer base ready t receive you.

    Check your exposure. Make sure it is limited.

    2. Be careful. Make sure you have a properly framed agreement with the Landlord. You are in danger of investing your heart and soul in a pricing project. Make sure you have a secure tenure. If I were the landlord and I had a building I wanted to put a nursery into but did not want to take a punt, you are perfect. Let you build it up, then don't renew your lease and pick up where you left off.

    Get signed contracts with a strong NCA. Make sure the NCA (Non Compete Agreement) covers remidy's too.

    Think about it! You build it, they come, you get kicked out, they bear the fruit of your labours. I have seen it done, not in your sector, but I have sen it done.
  • Slinky
    Slinky Posts: 11,003 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    This has turned into a very useful thread, I wonder if it could be made a sticky?

    We see so many threads where things have gone wrong, perhaps if people were to follow some of the good suggestions made here, then mistakes could be avoided.
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