For most business owners, selling up is usually a once-in-a-lifetime event. And while it’s one of the biggest challenges that many owner managers will face, it’s often pushed to the back of their agendas, with the day-to-day management of operations taking priority.
It’s estimated that nearly 45% of business owners don’t have a plan in place for their exit. But the value of planning ahead and creating a clear long-term strategy can’t be underestimated. Ultimately, it enables you to maximise the value of your business and helps to place you in a stronger position post-exit.
There’s a whole ream of factors to take into consideration when formulating an exit plan, some of which include:
1. Knowing which route is right for you
Knowing which exit route you will take is key, as it shapes the course of your exit strategy. While there are many exit routes to take, the two most common include:
Management Buy Out (MBO) – Wherein your senior management team acquires the business from you the owner. This means that you will need a management team in place with the capability of running your business once you have left.
For many business owners, the MBO route allows a level of reassurance in knowing their business will be left in the capable hands of a team they know and trust. That being said, it does require significant financial input from the management team, which can sometimes be a blockade.
Sale – Essentially this route involves the business being sold to a third-party buyer. As the owner, you would exit the business after an agreed period of time, after which the new owners would take the reigns.
2. When are you looking to leave the business?
In an ideal world, you would start planning for your exit at least 3 years before you actually leave. This gives you time to gain confidence and control over your exit, enough time to get your affairs in order, and will ultimately help to maximise the value of the sale.
3. What is your business really worth?
Knowing your price aspiration is crucial. However, it’s vital to have an objective understanding of the current value of your business. If there is a discrepancy between the current value of the business and your price aspiration, how are you going to bridge the gap between the two numbers?
This could be organic, such as increasing sales, or it could require the acquisition of another business to improve profitability.
4. Is your management team ready?
If your team is taking over the business, you need to make sure that they are capable of making decisions without your input and can run the business efficiently once you have left.
If you’re selling the business to a third party, buyers will undoubtedly be looking at how strong your management team is, and they won’t want to see everything come to a standstill once you’ve left.
Either way, it’s vital to ensure your management team has a strong grasp of your strategy and operational setup.
5. Funding
It’s not always viable for your current team to invest their own personal finances into the business. If your team isn’t able to secure funding, an MBO exit route might prove difficult. In this case, a trade sale or a deferred MBO (DMBO) could be a more suitable route for your exit.
6. Removing unnecessary costs
Taking the time to look at the cost base of your business can go a long way in improving the profitability of your organisation.
It will highlight any unnecessary costs which could be removed to increase the profitability of your business - and typically higher profits equate to a higher value.
7. Who owns what?
From leasing agreements, property leases to freehold properties, assets might not actually be owned by the correct entity.
We’ve seen time and again that particular assets are in an individual’s name, while the rest of the assets are owned by the company. If this is the case, it’s important to resolve this ahead of your exit.
8. Maximise your tax position
Tax can have a huge knock-on effect when it comes to selling your business. Careful planning and ensuring shareholdings are structured in the right manner can place your business in a much stronger and tax-efficient position upon your exit.
9. Tidying up
Making sure your business is in the best condition possible is a key part of the exit process.
Whether it be paperwork, agreements and contracts, litigation, or statutory records, ensuring everything is in order will lend you favour when it comes to the due diligence process and add further value to your business too.
10. The value of finding the right advisor
Exiting a business is a very specialist area, so having the right advisor by your side is essential to ensure that the true value of your business is realised.
A good advisor can help to maximise the value of your business, offer a strategic direction, and even help to find the most appropriate buyer for you and your business in an effective and discreet manner.
Chris Hird, Corporate Finance Associate Partner at Haines Watts
