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Exiting your business successfully
Many business owners are so busy running and growing their business that they never stop to think what will happen when they retire.
So when should you start planning for your exit? Ideally, this is something that should be considered when the business is set up. This gives you the opportunity to update your strategy on an annual basis, ensuring the business is developing in a manner that meets your chosen exit option.
If you have not already started planning for your exit, we recommend you begin at least a few years in advance in order to achieve maximum value for the business, as well as ensuring a smooth transition and ongoing success.
In addition to adding value to your business, keeping your accounts in order, expanding your range of customers and suppliers (and tying them into long-term contracts), as well as checking you are compliant with all the relevant legislation, will ensure your business is perceived as efficient and well-maintained in any due diligence investigations.
Carefully planning your exit also ensures you can steer your business in the direction required for your chosen exit strategy. For example, training your successors is an important consideration, whether they are a younger family member or part of your current management team.
Timing is also a crucial factor. You should aim to exit when the business is successful and market conditions are advantageous. However, beware of leaving it too late, as you may be forced to exit for a lower price.
You should consider all the exit routes available to you, which may include:
- Trade sale: this can be a good option for a profitable exit if you have several competing buyers, but the business will need to be an attractive entity.
- Management buyout: while you are selling to people you know and trust to look after the business, they may need time to raise the required funds.
- Family succession: this can be a way of staying involved in the business, although family members may not wish to take the business on.
- Management buy-in: while a wider choice of buyers may result in a higher price, it is not common for businesses to be successfully bought this way.
- Stock market flotation: this generates new capital for development, but your exit is likely to be partial, as investors will be put off if you sell all your shares.
- Merger: although this will bring extra resources in, it can be difficult to plan for a merger, as you do not know in advance how well the two companies will fit.
- Liquidation: this may be a suitable option if the business relies on your specialist skills or if family members are unwilling to take on the responsibility, but it will generate less cash than selling the business.
For smaller businesses, exits are mostly through family succession or management buyouts, while mergers are more common in people businesses, such as legal and consultancy firms.
If you intend to stay on after selling the business, you should consider an earn-out arrangement, where the purchaser will pay a further sum if the business meets agreed performance targets. While earn-outs can be useful in bridging any gap between the price you would like to sell the business for and the amount the purchaser is willing to pay, there will be tax considerations to take into account.
For more help and advice on planning a successful and profitable exit, please contact us on 01904 624155 or email jaf@jwpcreers.co.uk.
To find out more about how we can help you, please contact JWPCreers LLP in Selby and York.