When an entrepreneur starts a business, they will typically devote a significant amount of time and energy into building the business before they even consider how they will exit. However, as a business owner, planning your exit is important. It can help form a clear vision for your business and encourages strategic decisions up to exit to maximise value.
With an exit strategy in place, you will be better prepared, and succession is more likely to happen smoothly and at a time of your choosing to meet your goals.
There are several different options for exit including management buyouts (MBO), trade sale or taking a stock market listing (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 five reasons why you should have a business exit strategy:
- 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.
- Timing is important – Your industry, revenue and EBITDA 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 or the exit may take longer than expected, leading to increased costs. Businesses are normally the owner’s biggest asset, so you want to get the most out of it.
- Tax planning – You’ll want to maximise the value of the company and minimise the amount of tax you must pay. Capital Gains Tax, Inheritance Tax, pensions, and wills all need to be taken into consideration and for some, will take a while to arrange. So, you need to plan early.
- 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 through an MBO. Knowing this in advance, allows them to be ready when the time comes.
- 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 the business is worth.
Planning is important so below are some questions to ask yourself:
- 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.
For further information on exit plans, please contact us.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some key information rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
