Mapping out your business future: exiting
It’s probably true to say that it’s not often you get in a car or board a train without knowing your destination. Planning your exit should not begin at the end – it’s something that successful business owners build in to their plans early in the journey. The sooner you start thinking about it, the more informed you will be about the process and the potential outcomes.
As you plan for growth and maturity, you should plan for the exit point. Say you are starting your business today, aged 35, and you know you want to retire in 20 years’ time. Being familiar with the principles of ‘exit’ will help you at the start-up, growth, maturity and ‘what’s next?’ stages. It will also help you to set achievable milestones along the way so that you can tell if your efforts are contributing towards a successful outcome at the point of exit.
If you have a goal to dispose of the business and want to achieve a target value, but you haven’t understood the basis on which businesses are valued, it’s unlikely that you will get what you want.
Understanding how an acquirer will value your business in broad terms will allow you to assess whether you are likely to meet your own expectations and, if not, direct you towards the routes you might take to improve the business and its value prior to sale. The closer you leave that assessment to the point of disposal, the less impact you can have on the outcome.
Preparing yourself for the exit process is also key to maximising value.
Getting the business in tip-top condition and ready for disposal is critical. Ensuring the business’s legal arrangements, accounting records and other critical documentation are properly validated and up to date is critical to transaction success, so give the business some thorough attention.
Understanding the current tax environment and monitoring its change over time will also help you to determine what your after-tax proceeds from a transaction will be. The current tax environment is generally favourable for those looking to exit their business, but that might not always be the case.
Your ongoing role after exit needs considering. There are often reasons why the new owners will want the previous owner to remain involved after the transaction, but this is mainly to ensure an orderly passage of expertise, knowledge and goodwill from old to new. Taking the money and running is rarely an option for all but a minority of businesses.
Exiting doesn’t just mean selling to a trade buyer; there are other opportunities and pathways.
You could explore a management buyout and stay involved to support the team, or you could look to pass the business on to a loved one and build a legacy.
While these routes may not necessarily be the best in terms of business value, either scenario may represent the optimum exit route for several personal or business reasons, so they should be explored.
Succession planning is something that we really enjoy helping clients to achieve, as it is the culmination of a lifetime of hard work. It is rare that one type of exit will fit all eventualities, so take the time to give this final process the careful and considered thought that is needed.
Written by Nigel Kimber