This post is by Giles Ellis, an experienced business coach and Director at GECA Chartered Accountants. GECA offer Succession Planning and other Business Advisory Services.
Plan to leave, or be left with nothing
Why exit planning is essential
What many business owners don’t realise is that it’s not that easy. Without a solid exit plan, unexpected taxes or a low sale price could mean you’re left with nothing – or very little – to show for your years of hard work building the business. Even if you wish to pass your business on to your successors rather than sell outright, you still need a strategic plan to ensure the handover goes smoothly.
To sell or not to sell
Selling works for some people, but it’s not the only option for leaving your business. You can also choose to pass ownership on to your children or relatives, take the company public by listing on the stock exchange, or liquidate the company assets and take the profits.
Transferring ownership to the next generation may seem like the simplest option, but it still needs to be done carefully. This means maximising the value of the business as you move toward handover, so you’re not leaving them with a burden. Inheriting an unprofitable, poorly managed business is less of a gift and more of a booby prize.
If you plan to go public or liquidate your assets, the same principle applies. Maximising the value increases your potential profit – and makes that sweet retirement much more viable.
Tax is often forgotten in the rush to sell a business, but without appropriate planning, you could end up paying far more tax than you need to when you exit. By planning at least one year ahead – or earlier – you can minimise the cost of capital gains and income tax.
Whatever your intention, an exit plan lets you control the process and focus on building value before you leave.
Plan way ahead of time
Exit planning should begin well ahead of your actual leaving date. Start at least a year before you plan to leave – preferably even earlier. Even if you think you’re too busy to work on an exit strategy, it is a vital job so it’s worth prioritising.
You need that time to maximise your business value so potential buyers are motivated to purchase. You will have to provide accurate, up-to-date business information, including monthly management reports, accounts, margin analysis, and data about your tax position, to prospective buyers. On their part, they will want to investigate all parts of your business thoroughly, identifying risks and potential growth, before they decide to buy.
This might mean:
- Developing or expanding your unique sales points, so prospective buyers can be assured of future growth
- Investigating new geographic or demographic markets to strengthen your business case when you sell
- Working on new product lines or services to maximise potential value
- Compiling at least two years’ worth of accurate, detailed accounting data to show potential buyers
- Working with partners, directors, and managers to align them with your goals for selling the business
- Looking into possible threats to the business – changes to legislation, new technology, or competitors – and creating a strategy to protect the business as much as possible
Help from planning professionals
If you think exit planning sounds overwhelming, you’re not alone. The good news is, you don’t have to do it by yourself – in fact, it’s usually more cost-effective to work with exit planning experts.
They will be able to help you:
- Understand your exit options and help you choose the best strategy for your business and your goals
- Assess the current value of your business and its key drivers
- Investigate future prospects and growth potential
- Help you work out your sales goal price – that is, the amount of profit needed to fund your future lifestyle
- Compare current value with your sales goal
- Identify the unique appeal of your business and any negative aspects that may put buyers off
- Work with you to improve key value drivers as you move towards sale or succession
- If you are planning to sell, an exit team can also help with that: finding prospective buyers, helping you select the best offer, and making sure finance is in place before the deal is finalised.
Plan a profitable exit
Exit planning doesn’t have to be time-consuming or expensive to be effective – but it does have to start a year or more before you’re ready to leave. With help from a financial adviser, you can make sure leaving your business puts you on a solid financial footing. With a clear, cohesive plan, you can maximise the sale price of your business, achieve personal financial goals, and leave with a comfortable nest egg for you and your family.