Exit Planning

Strategic exit planning

When embarking on a new venture, it is unlikely that you will give much consideration to how you will exit the business when the time comes. However, it is very important to plan ahead in order to maximise the personal financial gains, as well as ensuring the smooth onward transition of the business.

Creating and putting into practice appropriate strategies at each stage of your business life is crucial if you wish to obtain the maximum reward for taking the risks inherent in being in business.

Every business owner should develop a personal exit strategy.

Important issues to consider may include:

  • Passing on your business to your children or other family members, or 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.
  • Are your company's products and services diversified?
  • Does your company use up-to-date technology?
  • Does your business have an effective research and development programme?
  • How competitive is the market for your company's goods or services?
  • Does your company have to contend with extensive regulation?
  • What are your competitors doing that you should be doing, or could do better?
  • How strong is the company'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 you formalised contracts with suppliers and customers?

Getting the timing right

You need to weigh up the factors which might influence the right time for you to sell your business.

You might want to take into account personal factors such as:

  • When do you want 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?

You will also need to consider business-related issues including:

  • 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?
  • Is your business doing better than other similar businesses?
  • Is your business at, or near, its full potential?

The sale of your business

If you consider 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 essential to start planning in advance how you will realise that value.

This is particularly important 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 vital to plan how you will maximise the net proceeds from its sale.

You will need to consider:

  • When might you sell?
  • Who are the prospective purchasers?
  • What are the opportunities to reduce the tax due following your sale?

Let us help you maximise the net proceeds arising from your 'ultimate sale'.

Maximising the sale value

Whoever buys your business will want to be clear about the underlying profitability trends - are profits on the increase or declining?

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.

The value attributable to many businesses is driven by their historical profits, and therefore a rising trend in profitability should result in an increase in the business's value.

Profitability planning is always important, but is particularly so in the years leading up to the sale. So, what is the range of values for your business?

Although you may think you can make an educated guess, a professional valuation gives you more solid ground. Determine your position today and then work with us to establish how you can make your business more valuable.

Valuing the business: some key points

  • Are sales flat, growing only at the rate of inflation, or exceeding it?
  • Is yours a service business with limited fixed assets, or are stock and equipment a large part of your company's value?
  • 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?

For more information please contact Iain Sim or Gill Groom.

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