Planning Your Exit Strategy

Planning Your Exit Strategy

Planning your exit strategy

We’ve all heard business owners say: “my business is my pension”.  But, how many of them have an actual plan or is it just an indefinable belief that they will be able to sell at some future point.

In order to ensure that your exit is a seamless transition for you, your employees and your clients you need to work on this in advance.

 

  1. Make a plan

How reliant is your business on you and your input, or do you have the systems and processes in place that it can continue without you?  This litmus test for this is how well the business can cope when you’re on leave.  Does it still function, or do you need to be constantly steering the ship?

Unless these processes and procedures are in place you run the risk of your business being undervalued.  If you leave it too late you will run into issues when due diligence is done by prospective buyers potentially reducing the sale value.  What’s more if you need to sell at that point, could you be at danger of holding a fire sale?

The sooner you have an idea on the timescales involved you can be putting the relevant steps in place including the succession planning.

This would be relevant whether you are considering selling on the market, conducting a Management Buy-In (to the current management team working for you) or placing the business in an Employee Ownership Trust.

 

  1. Start financial planning early

If your business is indeed your pension, you need to have a plan on how you will extract the money from the business.  Will it be a lump sum, or a series of payments?  Will you stay on in a leadership capacity to help with the transition to the new owners?  If so, how do you feel being answerable to someone else after all this time?

All of these questions need some thought as the amount of money you’re getting, from what source, and what frequency may have an impact on your plans.

It is important to know the options on how to take the money out tax-efficiently, and ensure it finds the right home to remain as tax efficient as possible and continue to support your lifestyle in the long term.

This will need to be balanced with continuing to keep the business in a viable and attractive state for maintain its attractiveness to potential buyers.

 

  1. Appoint experts

You will need the support of a team of expert advisers such as accountants and solicitors who understand the intricacies with a business sale.  This may require a different skill set than your existing advisers can provide.

Paying for expert advice may seem like an additional expense but it could be a very good investment in terms of ensure you gain maximum value in the most tax-efficient way possible.

 

  1. Business as usual

The actual exit process can be a lengthy and disruptive process, especially in relation to due diligence. The purchaser will be asking for a significant amount of information and will try to find your weak points – allowing them to negotiate on the price!

Whilst this is going on you need to continue to run the business as usual.  Now is not the time to drop the ball if you want to get the most value from the business.

This can be an emotional time as you burn the candle at both ends.  Having trusted advisers at this moment can help keep perspective (and provide someone to delegate tasks to) and focus where it’s needed as you balance the competing demands.

 

  1. Put a succession plan in place

I’ll be honest… I’m not 100% keen on term “succession plan”.  It automatically invokes the thought of you not being around anymore.  Although this is the purpose you need to put your clients and employees at ease that wholesale changes are not on the horizon.

The term I prefer is Continuity Plan.

Not only does it address the previous point, but it allows you to work on this long before your departure – almost along your Business Continuity Plans.  I’m sure you have emergency procedures in place for all manner of eventualities.  Does that include the lack of your presence?

When I was the in the corporate world my vision was always to make myself “redundant”.  Not actually redundant but the ability that my team could function without me – that I had spent the time and effort giving them the skills, knowledge and confidence to perform whether I was there or not so that I was able to guide them rather than manage them.  I’ll be honest, I never fully achieved this, but by working on this goal, when I wasn’t around e.g. holidays etc, the performance did not significantly alter.

Therefore, can you begin working on your Continuity Plan now, and have your people use to having this empowerment, and your clients not have you as the main focal point?  This could help build a really strong culture further enhancing any potential sale value.

A buyer still may wish to tie you to the business for a period of time after the sale is completed to ensure the hand-over process is smooth, with a balancing payment due at the end of this period.  Or you may be offered incentives to stay.  However, some business owners struggle with this – suddenly having to answer to someone else!  Which brings me on my final point…

 

  1. Work on yourself

You’ve spent years working and building your business.

It probably feels like a child to you.  You’ve probably been described as a “workaholic” at least once.

Can you just sail off to the sunset?

I believe retirement should be considered as a dimmer switch rather than a light switch – you can’t just turn it on.

You need to adjust to the change.  I believe this is even more so in the case of leaving your business.  What are you going to fill your time with?  The more you can begin on creating a life outside of work the easier any transition will be.

 

Summary

This is not an endless list but hopefully this gives you a couple of pointers to consider as you plan your exit.

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