Blog

PLANNING YOUR EXIT STRATEGY

An exit strategy helps define success and provides a timetable for charting the growth and progress your business had made over the years. An exit strategy also aids strategic decision making.

With no planned end-game, it's easy for business owners to get caught up more in the “job” they've given themselves rather than the long-term strategy behind running the business itself – or even why they started doing it in the first place. So here’s our 5 top tips to ensure you will be the first to reap the rewards of all the risk taking and sleepless nights you’ve probably experience:

1. Build a team around you to reduce dependency on existing shareholders:

This will help to reduce the likelihood of potential buyers wanting to defer consideration on the purchase of your business or link it to future performance. It also potentially reduces the need for the existing shareholder(s) to remain in the business once completion of a sale has taken place.

This is particularly important for any owners set on exiting the business immediately after a sale.

Make the opportunity to buy your business as attractive as possible – many interested parties are not looking to spend significant amounts of time in a new business, so having an established management team in place to continue post sale can be very desirable for investors and significantly enhance the value of the business. This has the added advantage of opening up the opportunity for a Management Buy Out (MBO).

2. Have a well thought out business plan and benchmark performance against it:

This helps to demonstrate to potential purchasers the company’s ability to meet forecasts. And shows the potential of future opportunities which may not yet have been implemented.

It also forces the company to use up-to- date financial information to aid and enhance decision making.

3. Undertake contingency (what if?) planning:

This helps the business to adapt quickly in case things don’t go according to plan.

It also helps deal with unexpected events like Covid or a downturn in the economy, and ensures it doesn’t materially impact on the value of the business or the timescale to exit.

4. Know your figures inside and out:

What is your company worth today? How much do you need it to be worth on disposal?

Regularly revisit the valuation to ensure you’re on track.

5. Be realistic on timescales and valuations:

What's the market like now for your business? Who are your potential buyers?

Have they got an appetite to acquire your business?

It always takes longer to prepare a business for sale than you think – so it is never too early to start planning for an exit. One thing that will slow down and hamper a sale is an unrealistic valuation.

Understandably, business owners have a tendency to over-value their companies. As the old adage goes, it is only worth what someone is willing to pay for it – which may be a lower valuation than the business owner expects. Remember, it’s not personal. It’s business.

If you need expert accountancy advice or tax guidance when planning your exit strategy, talk to Tom Hornbuckle at our Wilmslow office on Tel: 01625 416380 or email Tom.Hornbuckle@affordbond.com