Top 4 Considerations For Business Owners to Ensure a Successful Exit

At some stage, you will want to exit your business (typically at retirement), whether that’s facilitated by realising the value of your business through sale or management buy-out (MBO), or deriving an income from the capital that you’ve managed to put away over the years.

Having worked with and guided many business owners and directors along their journeys of building their wealth/business right through to successful exit, here are some of the key factors that can genuinely make all the difference.

1.    How to plan your exit

Firstly, there’s the basic structure of the exit:

• Keep going but reduce hours
• Transfer to family
• Transfer to employees (e.g. MBO)
• Sell (externally)

All of these options carry risk, tax implications and have an impact on your personal circumstances.

For the “Sell” option, the following are key value drivers:

Strong, growing profits; predictable revenues; non-reliance on owners; scalable products/services; little or no competition; strong brand; innovation; strong client base; high value assets; low debt; good cash flow. 

You should take a step back, honestly appraise the business and identify how many of these drivers are present. 

Next, we should appraise the barriers to realising value and determine how many are relevant, such as:

Timing; technology; economic cycle; availability of capital; buyers in the market; law/regulation; your and your family’s health; family considerations; tax implications. 

The above exercises, although not particularly scientific, certainly help to focus the mind, get you back on the business and look objectively. Often, the conclusion reached is to stay in for longer to work on maximising value and reducing the risks/barriers. 

2.    “My business is my pension”

Be honest, apart from the legal structure, psychologically, how much do you separate your personal and business assets? How reliant are you on the successful sale of your business to achieve your goals?

I would expect that you’re exceptionally busy putting the needs of your business before your own. 

It’s just human nature to assume that at some point it will all work out for the best.

This is a dangerous place to be and recent history teaches us that no business, of any scale, is safe. It’s essential to diversify the risk by building up additional pots of capital you can call upon in the future, should the business not achieve the value you hoped for. And with recent changes to Entrepreneurs Relief, extracting capital from the business is now more important than ever.

Pensions, for example, are highly attractive, not just from a tax-efficiency perspective, but they are also ring-fenced from creditors (most directors give Personal Guarantees to lenders and so the legal separation provided by limited liability structures will not protect the owner if the business fails). Pensions also enable multi-generational planning (free of inheritance tax) and can even be used to purchase the commercial property from which your business operates.

Pensions are just one of the many options available and a good IFA will put together a solution that works for you and your personal and business circumstances.

3.    Teamwork makes the dream work

I’ve always found that by working closely together as a team, professional advisers can add tremendous value, from structuring the exit with the other party; tax planning; putting finance in place; keeping the deal alive when our clients get weary of solicitors doing their due diligence; and generally holding the your hand through to completion. 

From the perspective of getting the right deal done, I always encourage my clients to involve a good commercial/corporate solicitor from the early planning stages, enabling them to provide a consultative approach and ask the difficult questions, to help the client reach the right conclusions, rather than simply executing the transaction and working on the contracts. 

For me, that willingness to go the extra mile is what differentiates a great solicitor from a good one.

In conclusion, keep a strong team of advisers (IFA, solicitor, accountant, banker) who can apply joined-up thinking to help realise your goals and that you can use as a sounding board.

4.    The big What if?

I’m yet to meet a business owner who doesn’t worry about what will happen to their loved ones if they suddenly die or fall ill. This is at least the one risk that can be fully mitigated using insurance and delivers instant peace of mind. Cost is highly competitive these days, and recent innovations allow large amounts of life insurance to be placed in trust for the family, but with the policy owned and paid for by the business, treated as an allowable expense, with no benefit-in-kind taxation implications. This is known as Relevant Life, and I strongly urge any business owner to consider it, as in most cases, it’s a no brainer.

Need more help?

If you are serious about securing your financial future, message me on Linkedin or email me on [email protected] to arrange a 15min chat about your goals and how I may be able to help.