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BLOG: Without Exit Planning, You Could Be Left With Nothing

Andrew Clarkson, Finance Director, The FD Centre

Do you dream of selling your business for a very tidy profit so you can retire and spend your days on luxury cruises or working on your golf handicap?

Well, without an exit plan, your dream doesn’t have much chance of happening. That’s because you just won’t realise the true value of your business without proper exit planning. 

Sell at the wrong time, for example, and you really could be left with nothing to show for your years of hard work.

Without appropriate planning, business owners could pay far more tax than necessary when exiting the company. With the correct planning, however, your exit can minimise or even eliminate capital gains, estate and income taxes.

Minimising your tax liabilities while at the same time keeping your partners, directors and managers happy with your decision won’t happen just because you’ve listed your company for sale.

It’s important to realise that selling the company is not your only exit option. You can also:

  • Transfer ownership to your children
  • Take your company public by listing on the stock market
  • Liquidate
  • Franchise the company

Even if your dream is to pass the company on to the next generation of your family, you still need to plan how to maximise the value of the business so they inherit something worthwhile rather than burdensome. Otherwise, you’ll be lumbering them with something closer to a millstone than a prize worth having. The same principle applies to franchising, liquidating or publicly launching the company. Your plan should be to maximise its value. An exit plan allows you as the owner to remain in control of the sale (or succession) process and focus the business on the most critical value-enhancing strategies before your exit. You might think you’re too busy right now to create an exit strategy but time really is of the essence if you want to get the business in shape to exit.

You’ll need time to develop unique sustainable selling points so you can show prospective owners that the business will enjoy continued growth. When you talk about the company’s medium and long-term prospects to potential buyers, being able to demonstrate that you’ve already made inroads into new geographical markets or new product ranges will certainly strengthen your case. That will take time which again is why you need to develop your exit strategy sooner rather than later.

Equally important is to consider the possible threats to your business which could have an impact on the attractiveness and therefore value of your business. Such threats might include an adverse change in legislation or new and competing technology in your existing markets. You and your management team need to develop a strategy to defend the business against such threats where possible and that again will take time to design and implement.

Your potential buyers will expect at least two years’ of accurate information including monthly management accounts, customer and product concentration details, and margin analysis. They’ll also want to know that the company structure is straightforward so they can avoid complications or extra costs.

Fortunately, you don’t have to do this alone. In fact, you’d be crazy to undertake any of this without first consulting exit planning experts. They can help you to:

  • Explore the exit strategies that will best serve your goals for the business and yourself
  • Evaluate the business’ current value and its key value drivers
  • Compare the business’ current value with the desired sale value (for individual owners this will be the amount of capital you need to underpin your future lifestyle needs)
  • Understand the future prospects for the business
  • Identify who the business will appeal to and why
  • Identify what may make the business unappealing to potential buyers and so restrict or negatively affect exit value
  • Clarify what you and your management team need to do in the short and medium term to improve the key value drivers and minimise the unappealing aspects to potential trade buyers, institutional investors or the existing management team

If you plan to sell, your team of advisors will also help you find the right buyer, ensure the buyer has the right finance in place to pay for the transaction, optimise your revenue after the sale and help you to plan your new post-sale life.

Planning a profitable exit doesn’t have to cost a fortune and nor does it have to take you away from running your business day to day. A part-time FD or CFO can help with exit planning strategies and advise you on the most suitable route forward. It’s what one of our part-time FD’s did for the original owners of Kiddicare to supermarket giant Morrisons for £70 million (and a remarkable 20x profit multiple).

With the right exit planning, you too can realise some significant personal goals, create a retirement nest egg for you and your family and secure your future. But for that to happen, you need to take action today.