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Business exit strategies
The importance of forward planning
At some point you will want to stop working in your business
and either sell up – in which case business exit planning is a
crucial element of your financial strategy, and could make all the
difference to your long-term personal finances – or hand over
the reins to your successors, in which case good planning will
also help to ensure a smooth transition.
Important issues to consider include:
• passing on your business to your children or other family
members, or to a family trust
• selling your share in the business to your co-owners or
partners
• selling your business to some or all of the workforce
• selling the business to a third party
• public flotation or sale to a public company
• winding up
• minimising your tax liability
• what you will do when you no longer own the business.
Selling the business
If your business has a market value, or if you are looking to your
business to provide you with a lump sum on sale, it is important
to start planning in advance, especially if you envisage realising
the value of your business in the next 20 years. Selling your
business is a major personal decision and it is very important to
plan now if you want to maximise the net proceeds from its sale.
You will need to consider:
• the timing of the sale
• the prospective purchasers
• the opportunities for reducing the tax due following a sale.
We can help with these considerations.
Maximising the sale value
Up-to-date management accounts and forecasts for the next
12 months and beyond will be close to the top of the list
of the information which you will need to make available to
prospective purchasers.
Anyone who is considering buying your business will want to
be clear about the underlying profitability trends. Are profits
on the increase or declining? Historical profits drive the value
attributable to many businesses, and therefore a rising trend in
profitability should result in an increase in the business’s value.
This means that profitability planning is particularly important in
the years leading up to the sale. So, what is the range of values
for your business?
A professional valuation will put you on more solid ground than
educated guesswork. We can work with you to determine how
you can add value to your business.
Your business valuation
When considering business valuations, some of the key
questions to ask are:
• Are sales declining, flat, growing only at the rate of inflation,
or exceeding it?
• Are stock and equipment a large part of your business’s
value, or is yours a service business with limited fixed assets?
• To what extent does your business depend on the health of
other industries?
• To what extent does your business depend on the health of
the economy in general?
• What is the outlook for your line of business as a whole?
• Are your business’s products and services diversified?
• How up-to-date is your technology?
• Do you have an effective research and
development programme?
• How competitive is the market for your business’s goods
or services?
• Does your business have to contend with
extensive regulation?
• What are your competitors doing that you should be doing,
or could do better?
• How strong is the business’s staff base that would remain
after the sale?
• Have you conducted a thorough review of your overheads,
to identify areas where costs can be reduced?
• Have contracts with your suppliers and customers
been formalised?
When is the best time to sell?
It is important to consider a number of factors when deciding
on the best time to sell your business. These could be factors
that may influence potential buyers as well as your own
personal circumstances.
Personal factors
to consider might include:
• When are you planning to retire?
• Do you have any health issues?
• Do you still relish the challenges of running your business?
• Does your business have an heir apparent?
• Will your income stream and wealth be adequate, post-sale?
Meanwhile,
business questions
might be:
• What are the current trends in the stock market?
• To what extent is your business ‘trendy’ or at the
leading edge?
• Is your business forecasting increases to the top and
bottom lines?