Five reasons why you need an exit strategy

Five reasons why business owners need an exit strategy

A study done by Imperial College London found that 95% of business owners have no exit or succession plan; at PEM Corporate Finance, we did our own study which found that 84% of business owners surveyed didn’t have a written exit strategy.

When people start a business, very few have in mind how they will exit. Some see having an exit strategy as a weakness preferring instead to focus on building the business. However, planning your exit is important. It creates an ultimate aim and a focus on gaining maximum value. It forms a clear vision for your business and encourages strategic decisions up to exit. With an exit strategy in place, you will be more prepared and it is more likely to happen the way you want it and at a time of your choosing.

There are several different options for exit including an MBO, trade sale or IPO. This means you may need different strategies for each. So, an exit strategy is key but certainly not, ‘one size fits all.’

Here’s 5 reasons why you should have one:

 

1. Everyone has to exit

For one reason or another, whether due to retirement, ill health, new opportunities or passing down to the next generation, an owner will leave a business. So, planning for it will mean that you are in the best position to get maximum value when that time comes.

 

2. Timing is important

Your industry, revenue levels and the economy as a whole will all play a part in determining when is best to exit. If you have a plan, you’ll be able to execute this more efficiently at the best point in time. Without a plan you may miss the opportunity. And if the exit takes longer than expected - costs involved may be high. Businesses are normally the owner’s biggest asset so you want to get the most out of it.

 

3. Tax planning

You’ll want to maximise the value of the company and minimise the amount of tax you must pay. Wills, inheritance tax, pensions all need to be taken into consideration and for some will take a while to arrange. So you need to plan early.

 

4. Helping management to plan

For the people left in the business, an owner’s exit plan can help them to plan for their own future. Also, depending on the strategy, it could give them an option to own the business themselves by staging a management buyout. Knowing this in advance, allows them to be ready when the time comes.

 

5. It adds value to your business

A good exit strategy should give you pointers to building value even if you have no short term plans to sell. It sets your short and long term goals for the business and every owner should have some idea how much their business is worth.

 

Planning is important. Questions to ask yourself are:

  • What kind of exit do you want?
  • When would you like to exit?
  • How much is your business worth and what would you like to sell it for?
  • What are the business’s value drivers?

 

The better prepared you are for exit, the more likely you are to exit at greater value and on your own terms.

Comment

Anna Tindall

Analyst
I am responsible for a wide range of research and analytical tasks, supporting business development and transaction projects across the team. PEMCF is hosting me three months during the summer of 2018 before I return for the final year of my BSc Economics degree at Lancaster University.

Latest from PEM

PEM Corporate Finance advises on succession buyout at Bailey Fisher

14/08/2018 - 16:35

Bailey Fisher Executive Search, a leading Cambridge and London firm focussed on the hiring of senior executives to some of the most successful companies based in the UK, has announced changes to its ownership structure which will further strengthen the business. PEM Corporate Finance acted as lead advisers on the succession buyout.

Read more >

Our culture

13/06/2018 - 12:28

Happiness and well-being is important to us. This emphasis on creating a positive culture where people can thrive is key to our success in attracting and retaining talented employees.

Read more >

PEM Corporate Finance advises on sale of leading energy management company

11/06/2018 - 21:10

eSight Energy Group Ltd, a leading developer and supplier of energy management software, is pleased to announce the sale of the company to German private equity firm, BID Equity. The acquisition enhances BID Equity’s position as an IoT (Internet of Things) provider focused on the energy sector and represents an exciting new growth phase for eSight Energy.

Read more >