Business exit planning

In this article, we identify some important considerations for business owners who are thinking about exiting their business in the future.

Business exit strategy

Planning for an exit is a crucial step for any business owner. Whether you’re looking to retire, move on to new ventures, or simply maximise the value of your hard work, having a solid business exit strategy is essential

Each business owner is in a unique position, both in terms of the performance of the business at any one time and their personal aspirations for their own lifestyle. This means there is never any ‘one size fits all’ approach for an exit and there are often multiple options and approaches to consider. It is important for a business owner to really understand what their personal aspirations are both for themselves and their business.

Business succession planning

Succession planning is critical to any business exit plan. For instance, there may be a second generation coming through within the business, or a tier of management who you believe is capable of taking the business forward. You would therefore need to consider the financing, taxation and practical impacts of succession planning, once the applicable individuals have been identified. This may be higher on the agenda following the changes to Business Property Relief (BPR) announced at the 2024 Autumn Budget.

Capital injection

Alternatively, the business may need a further injection of capital to allow it to take advantage of growth opportunities in the market. Therefore, an outside investment firm, private equity or institutional investors (through a listing on AIM for example) may be options to consider. Depending on which approach or partner is identified, there may be trade-off’s eg a loss of control or additional disclosure or regulatory requirements.

Selling your business

Conversely, you might have been all-consumed with running the business for such a long time, that you may want to seek to exit completely and find a new home for the business to thrive, in which case a trade sale would likely be the preferred option. Many seasoned entrepreneurs and business owners that have seen the volatility of markets for example the impact of the credit crunch, Brexit and Covid-19 may want to sell their business to de-risk the value that they have created against future market forces.

What’s important to a potential buyer?

If a sale to a third party is your intention, it’s crucial to understand what potential buyers are looking for. Some key considerations include:

• Strong financial performance: buyers will be interested in businesses with a track record of strong financial performance and growth potential. This includes ensuring a stringent management account process that can withstand the examination of potential investors and understanding and articulating the financial performance of the business. This needs to be readily available and on request rather than pulling information together throughout the process which can put you on the back foot.
• Robust internal controls: effective internal controls and risk management practices are attractive to buyers as they reduce the risk of future issues.
• Clear strategic vision: a clear strategic outlook and growth plan can make your business more appealing to potential buyers and help in negotiations if the deal involves earnout. We explore the factors that enable a business to grow in a separate article.
• Knowing the key personnel: the difficult part of selling a business can sometimes be stepping away. Therefore, it is important to fully understand the key management personnel which will help to give confidence to a purchaser that the business can operate without you.

Maximising shareholder value

At the heart of any exit strategy is the goal of maximising shareholder value. This involves not only increasing the financial worth of the business but also ensuring that the transition is smooth and beneficial for all stakeholders.

As a business owner, it’s important to consider how you can maximise the value you receive from the sale or transfer of your business. This includes:

• Ensuring your house is in order: conducting a pre-sale review of current systems and structure can help identify any financial or operational issues that need to be addressed before the sale.
• Consider a voluntary audit: even if your company does not breach the audit thresholds, a voluntary audit, finance function review or exit-readiness support can offer several benefits. The most beneficial aspect of undertaking an independent audit is the verification of the accuracy and completeness of financial information. This will help enhance stakeholders’ confidence in the company’s financial reporting.
• Understanding and managing tax risk: regular PAYE and VAT health checks can help manage tax risks and ensure everything has been considered and actioned prior to any due diligence to mitigate the risk of ‘price chips’ or retentions during negotiations.
• Utilising company tax reliefs: take advantage of available tax reliefs such as capital allowances and R&D reliefs to enhance the value of your business.
• Pre-transaction restructuring: consider the likely structure of a sale, any assets you may wish to retain/those a buyer may not want to acquire, and potential reliefs that could be available on a sale such as Business Asset Disposal Relief (BADR) or substantial shareholders exemption. There may be considerable benefit in restructuring well in advance of any transaction.

Selling your business to employees

Finally, selling a business to the employees via an employee ownership trust is becoming an increasingly popular option. For more information, please read Business succession planning or reach out to Saffery to understand how this could be achieved in practice and its implications.

Business exit planning – next steps

Positioning your business

If you have been approached by or identified a potential buyer, whether that be internal or external, you need to be able to position the business in the most advantageous way to maximise your exit value. For instance, a private equity buyer will be keen to understand the growth opportunities in the marketplace and why your business is the right one to capitalise on those opportunities.

In this situation you also need to ensure that there is a broad skill base across the management team and that you are able to effectively delegate your role in the future to ensure that not all roads lead back to you as the owner manager.

It is essential that your management team can continue to execute both the business strategy and day to day operations without your input. It is also important that you don’t put all your eggs in one basket in terms of any potential buyer or approach. Whilst you may believe that one exit route is the right one at this point (and, unfortunately, deals do fall through for a number of reasons), you need to be able to take stock and reassess your options at a future date if needed.

Choosing the right advisers

Whatever happens, don’t underestimate the intensity of a deal process. Once you’ve pushed the button, it will be like being on a runaway train, both emotionally and practically. It is imperative that you have the right advisers around you to meticulously plan and prepare the business before youo ‘push the button’. It will become apparent through that planning process as to whether you really do have the required skills in-house to go through a successful transaction.

One key consideration is the potential impact on the business of having senior people effectively performing two roles through the due diligence and deal negotiation period. However, with the right advisers around senior management then any business interruption can be kept to a minimum and the business can continue operate effectively. Have a clear vision for the future success of your business.

The history of your business and its journey is incredibly important to any buyer. However, your positioning for the future and where the story leads to is almost more important. Your buyer needs to understand this vision and why the business will be able to take advantage of the opportunities you present. Try to make sure that you, as the owner, aren’t ‘the’ story. You don’t want them to buy you, you want them to buy the business.

If you would like advice on optimising your business prior to a sale, please contact Jamie Lane.