Your Ultimate Guide To Business Exit Strategy

Business Exit Strategy Your Ultimate Guide

If you are looking to exit your business or have a future plan to do so, you need to plan your business exit strategy. When you sell up, you want your business to have as much inherent value as possible – so you get a good price, a great return on your investment, and the best possible payout.

So, how do you take yourself ‘out of the business as the founder, add the best value, and set up an effective and financially beneficial business exit strategy?

Owning a business can be brilliant, but you might not want to do it forever.Whether you’re ready to retire, want to cash up, or you just need a break, at some point you will probably want to move on from your business. Even before that time comes, you’ll need a business exit strategy plan for stepping back.

What is a business exit strategy?

A business exit strategy refers to a plan that outlines how business owners intend to exit or sell their business when the time comes. It is a crucial aspect of business planning and involves determining the best way to maximize the value of the business and ensure a smooth transition.

Different forms of a business exit strategy

Sale to a Third Party:
- Selling the business to an external buyer, such as another company or an individual entrepreneur.
- This could involve the sale of assets, shares, or the entire business.

Management Buyout (MBO) or Employee Buyout (EBO):
- In an MBO, the existing management team purchases the business from the current owners.
- An EBO involves selling the business to its employees.

Family Succession:
- Passing the business on to family members, often through a carefully planned succession process.
- This may involve gifting or selling the business to the next generation.

Initial Public Offering (IPO):
- Taking the company public by listing it on the stock exchange, allowing shares to be traded publicly.
- This is a complex and resource-intensive process, typically suitable for larger businesses.

Merger or Acquisition:
- Merging the business with another company or being acquired by a larger entity.
- This can provide liquidity for the business owners and potential synergies for the combined entities.

- Closing down the business and selling off its assets to pay off debts and distribute any remaining funds to the owners.

Strategic Alliance or Partnership:
- Forming a strategic alliance or partnership with another business, which may involve sharing resources, technology, or market access.

- Expanding the business by franchising its operations to individuals or entities willing to operate under the established brand.

The choice of business exit strategy depends on various factors, including the owner's goals, the business's financial health, market conditions, and industry trends. It's essential for business owners to plan their exit well in advance to optimize the process and achieve the best possible outcome. Seeking advice from financial and legal professionals with expertise in business transactions is often recommended to navigate the complexities of the exit strategy.

Why is a business exit strategy important?

Stepping away from your business can be a complex process. You don’t want to be rushed or pressured when you start this process. You need to have a business exit strategy, also known as a succession plan, so you can step back in the way that best suits you.

Having a plan in place means you can maximise your sale price, and it helps with a smooth transition to the new owner. With time to get yourself organised, you can also support a new owner to borrow, or ‘earn out’, the purchase of your business.

How to create a succession plan

The closer you are to exiting your business, the more detailed your succession strategy needs to be. Your plan will vary depending on your situation, but it should include written goals, a list of assets with their values, and a timeframe. You should also talk to other people who might be involved, like family members or senior team members.

You’ll also need solid advice – from us and from your lawyer. If you’re thinking about stepping back, we can help talk you through the options, calculate the potential value of your business, and get a succession plan in place.

Define your goals for your business exit strategy

Every business has a finite lifespan. Some may last for decades, and some may only last a couple of years. As the owner of a business, the life of your business is likely to be strongly aligned with your own life goals and personal plans for the future.

When the time comes to sell up, it’s important to know what your goals are for the sale. Are you looking to retire? Or do you have a burning ambition to start a new venture?

Know your main objectives from the sale of the business

At the point of planning an exit, you need to think carefully about WHY you’re selling up and WHAT you want to achieve. This is a huge change in your life, your business career and the fortunes of your company and employees.

Ask yourself what your true goals are from this exit:

- Do you want to retire, ease the pressure and enjoy some freedom?
- Has this business journey come to an end and you need a new challenge?
- Do you need to free up your capital to invest in other business or personal projects?
- Is there a worthy successor who’s itching to jump into the hot seat?
Whatever the motivation for a business exit may be, be sure to consider your options and decide on some concrete end goals.

Who is going to take over the business?

Business sales are rarely a simple process and by putting the company on the market you’re opening yourself up to a complicated process of negotiation, financial agreements and legal wrangling.

Knowing who will take over the business can be difficult to predict, but you do have several options when it comes to the end outcome.

For example, you could:

- Sell the business outright to a new owner and remove yourself from the company
- Sell the business but remain on as chairperson or a non-executive director (NED)
- Merge the business with a sympathetic competitor to aid their growth
- Agree to a partial or complete acquisition from a competitor or private equity firm
- Pass the business on to the next generation of your family
- Agree to a management buyout from your existing team.

Outline how the sale proceeds will be used

Once any sale, merger or acquisition is complete, you’ll be on the receiving end of a substantial amount of money. But what do you intend to do with this money?

The way you use the funds from the sale will vary, depending on your end goals for the business exit. As the vendor, this money can fund various different life goals for you, so it’s crucial that you have a clear understanding of what you want to do with the sale proceeds.

Will the funds be used to:

Build a nest egg for retirement – if your goal is to retire, the price you sell the business for will need to provide enough funds to see you comfortably through your retirement. This means understanding your life goals, your outgoings and budgeting accordingly.

Form the capital for a new business idea – you might be ready for a new business challenge. If so, your sale price needs to cover the startup costs needed to found a new business, while also covering your personal financial needs in the early stages.

Gift money to your family and the next generation – it could be that you want to pass on your wealth to your family. If that’s the case, you need to factor in the money you plan to gift, while also considering your own financial needs over the coming years.

Make donations to charities, social causes or political interests – if you have particular charities and causes that are close to your heart, you may want to donate some of your sale proceeds to these institutions. Whatever you decide to donate, make sure that you’re aware of the tax implications and how this affects your tax bill.

Invest the money to create a return – you may want to invest the sale proceeds to create a healthy return and increase your wealth. This could mean investing in other startup projects, buying shares in growing companies or putting your money into a pension scheme or high-interest savings account. Again, knowing the tax implications of any kind of investment is vital if you’re going to invest in a tax-efficient way.

Adding value to your business prior to an exit

Generally speaking, a business exit strategy will be put in place years before your planned exit date. This gives you time to work on your sale plan and deal with any succession issues. But more importantly, it gives you the time needed to add additional value to the business prior to a sale.

Every business has its own unique sale value, based on the size of the business, the worth of its assets and the perceived value of the company on the open market.

But what can you do to add value to your business and achieve a better sale price?

Make sure you're running a tight ship

When you sell a house, estate agents will advise you to redecorate, clear out the rubbish and add more to your sale price as a result. The same is true of selling a business.

A potential buyer will generally want to purchase a business that’s in good shape. Sometimes a buyer will purchase a badly performing business to either a) whip it back into shape, or b) buy it cheap, sell off the assets and make a profit. However, if profit is what they’re looking for, a well-organised and efficient business is a better prospect.

Adding value starts by doing your housekeeping and making sure the whole business is in a good position to hand over. That means having:

- Modern, digital systems to keep your operations efficient, secure and well integrated
- Excellent record-keeping, compliance and governance procedures in place
- An excellent customer base to provide stable sales and good revenues
- A good brand awareness and positive reputation in your sector
- Efficient executive, management, operational and administrative teams to run the business in the smoothest and most effective ways.

Resolve any ongoing business issues

Every business will have a few ongoing business issues to contend with. These could include legal worries, court cases or bad debt in the business, and they can all have a negative impact on the company's value. The more you can do to resolve these issues and present a worry free environment for the new owner, the better.

Work with your lawyers, solicitors, HR advisers and accountants to find resolutions for any long-standing problems in the business. If you can hand the business over without a long list of potential headaches for your buyer, that’s likely to add value to the business. Trust is also important in a sale. Being transparent and open about any previous issues will also create a better relationship between you (the vendor) and your buyer.

Improve your financial health

Most buyers will be looking to purchase your business and turn a healthy profit. To do this, they’ll want to know that the company is financially healthy. This means having books that balance and plenty of potential for them to continue this company as a profitable venture.

So, which areas of your finances should you be looking at? The key here is to be in control of your financial management, and to have a strategy in place that will improve each area of the business over time as you near your sale date.

This will include

- Strengthening your balance sheet, so you can present an attractive set of accounts
- Improving your profit and loss, by increasing revenues and cutting your expenses
- Boosting your cashflow position through careful cashflow management
- Reducing your debt liabilities, by resolving late payments and bad debts
- Polishing up your credit score, by partnering with a credit improvement specialist
- Making sure the business is well funded, by working closely with lenders.

Get your executive team ready to take over

You may well remain the lynchpin in your current business. But a business that’s still 100% reliant on its founder is not an attractive proposition to a buyer. If the business is still reliant on your everyday operational input, and you then walk away, that business can no longer function effectively. To remedy this, you need to step back and get your team ready to take over.

The easiest way to do this, is to think about the key areas where you still have input, and to then systemise these and put them under the remit of a member of your executive team. If you’re still signing off the payroll, pass this to your finance director. If you’re still taking part in all client sales presentations, defer this to your sales director.

You'll need to be able to sell up and step away from the business without there being any operational or leadership issues for the new owner.

Work with your advisers to proactively add value

Business advisers in the M&A market have the advantage of having worked on hundreds of different business sales, across a multitude of sectors. They know what looks attractive to a buyer and what the main red flags are in a purchase. And, importantly they know how important it is for your business to have a razor-sharp focus on adding value.

A good firm of advisers delivers a range of different advisory services. By gradually enhancing every element of the business, you’ll end up with a far more attractive business to sell.

Keep any staff problems, legal issues or accounting challenges to a minimum, so the business is as attractive as possible to potential buyers, and the sale can be completed quickly.

To meet your personal and financial goals for this business sale, you want your company to be an attractive proposition on the open market. This process of added value isn’t instantaneous, but with the right advice, planning, and business exit strategy, you can move towards a more valuable sale price.

Getting ready to exit the business

Selling your business is a big move, where it’s invaluable to have the best possible support and advice to guide you through the sale process.

Talk to your accountant, tax agent and other business advisers and run your business exit strategy past them. As a founder, it can be difficult to be objective about your business. But external advisers have the advantage of being able to look from the outside in, with real objectivity. This helps you get independent, expert advice on your exit goals, your business exit strategy and your tax planning.

If you’re thinking about selling up and moving on, please do get in touch. We can give you the advice you need and set you on track for a successful and profitable sale.

The more attractive the business looks in the market, the better the price you’ll achieve, or the better the yield you’ll see on selling your company shares.

Get in touch to build your business exit strategy.

Related links:
Small business exit strategy
Exiting a business | business exit strategy

Acro Accounting & Financial Planning (AAFP) offers a one stop solution right from accounting, taxation, financial planning to other business advisory services. As Certified Practicing Accountants (CPA’s) and professional tax advisors, we pride ourselves on being experts with the latest developments relating to business and taxation. We as professional public practice firm, provide high quality taxation and business advice to our clients through a personalised service at competitive rates.

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