Insights

Andrew Robins

Published 23 May 2022
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Your business exit plan

In an ideal world, you will be planning your business exit at the very start of your entrepreneurial journey. Of course, it doesn’t always happen that way, but a good exit strategy and management plan will ensure you maximise the value and potential of your business, making it attractive to buyers, enabling a smooth handover of ownership and ensuring you achieve your personal objectives.

What’s more, with a long-term objective in mind, it enables you to make informed decisions in respect of the ongoing day-to-day management and should by default improve the efficiency, management, and profitability of your business until such time as you exit. In this post, we outline the key components of your exit plan, but each case will be different and often complex, and you will inevitably need professional advice along the way, whether that be in respect of valuations, tax or legal advice.

Objectives

As with any strategy, your exit plan should start by identifying your objectives. In terms of personal objectives, as the business owner, one of your key decisions will be to decide whether you want to sell for maximum gain or leave more of a legacy.

Although you may not have any idea about potential buyers yet, it is also worth thinking about buyer types: family members taking over the business, a management or employee buy-out, a competitor buy-out or even venture capitalists. This helps dovetail your planning by addressing both what you want to achieve and what the different buyer types will want to get from taking over your business.

It will also help with your more detailed planning. For example, a management buy-out may mean management will have to secure funding but they will also know your customers and processes, which may help with succession planning. Venture capitalists will have different motivations and will have a very keen eye on due diligence and profitability.

There will inevitably be tax and financial planning implications to be considered too. These are likely to include mitigating any tax liability, taking advantage of any available tax relief (such as Entrepreneur’s Relief) and inheritance and pension planning. Early and ongoing advice will be essential.

Timeframe

Establishing a timeline is also important, although it should not be set in stone. As owner, when do you want to exit the business? Once you have even a rough idea of this, you can start to backfill what needs to be done to achieve a successful exit.

Areas of exit planning focus

  • Key assets  

Identify your key assets and think about which assets your preferred buyer type may favour. Ensure all steps have been taken to secure and then maximise the asset potential. For example, ensure that you have protected intellectual property. Consider plans to sell or buy property, allocate shares or move premises in the context of your long-term exit strategy. Weigh up the short and long-term gains and any tax implications.

You will also need to try and agree asset valuations with your buyer in due course and therefore understanding the different valuation methods can be helpful as you plan how to maximise asset potential. Are there any issues as to ownership that will need to be resolved or any restrictions on disposal or use?

  • Performance

One of the key elements of exit planning is to have up-to-date information about business performance and finances. This provides valuable insights into revenue streams, cash flow and potential. This in turn allows for informed decision-making about both current practices and business models, and future activities that may improve performance. It should also identify areas of risk or weaknesses so that steps can be taken to mitigate these.

  • Leadership and management  

With the long-term objectives of the exit strategy in mind, the business owner can and should focus on developing the management, leadership and succession that will take the business to and through the point of exit. This not only is key to a smooth exit but should improve the leadership and management on an ongoing basis, providing a framework within which to make decisions.

  • Operations

In due course, and as part of the exit, the new owner will need detailed information about the business operations and processes. Documenting this from the get-go will not only save time at the point of exit but also provide valuable insights about efficiencies. This includes everything from sales and marketing to your operations manual and ensuring you have a full suite of policy documents.   

  • Compliance and legals

It is helpful to review employee and customer contracts. Is there a need for a restrictive covenant clause or should you consider employee incentives? Have you minimised the risk of litigation with your customer and supplier contracts? Do you need to review your recruitment practices?

You’ll also of course need to demonstrate that you are legally compliant in terms of insurance, industry standards, and HMRC.    

  • Market Conditions

Understanding and monitoring trends in supply and demand for your products or services and knowing the competition and marketplace can be crucial both as to the timing of your exit and identifying a potential buyer.

It is never either too late or too early to start your exit planning but it’s important to bear in mind that there is no one size fits all approach. Your individual exit plan will need to be tailored to your personal objectives and the unique circumstances of your business and you will inevitably need advice about the many different aspects from different professionals.

Please get in touch if you’d like more information or advice about exit planning. 

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