Exiting the Business- What’s the Plan?

Navigating Your Business Journey

Consider your business as the car you’re driving. Do you have a clear destination in mind? Are you equipped with signposts or a map to steer you toward your goals? Just as a reliable satnav system offers precise directions and guidance, an exit plan acts as the ultimate business navigation tool. It not only outlines the route to success but also specifies your ultimate destination.

The Fluidity of Exit Planning

An effective exit plan must be flexible, evolving as your business grows and changes. It provides clarity and peace of mind by defining what you need to achieve to successfully sell or exit your business. In unforeseen circumstances, such as illness, a well-structured exit plan allows for swift action and a successful sale if needed.

Navigating Uncertain Terrain

As recent events like Brexit, COVID, and global conflicts have shown, market and economic changes can quickly alter a business’s long-term outlook. Without a robust exit strategy, unexpected changes may prevent you from maximising your business’s sale value, potentially leading to financial losses. As the saying goes, “Failing to plan is planning to fail.”

The simplest of exit plans should include:

How a potential exit or sale would happen

Obviously, this will depend on your family situation, business position and employees but it’s important to think about your options:

• Would the business be potentially sold to a third party?
• Would you have interested management to facilitate a Management Buy Out (MBO)?
• Or would children or family members be interesting in taking on the business?

Thinking about each of these options (ruling out any that would not be feasible) will help you plan more effectively.

The value you require for the business

Think about what you want to achieve from a potential sale and, if it’s for retirement, how much will you need to live comfortably and what do you want to leave for inheritance?

If the business will likely be passed down to children or other family members, what will it need to be worth to enable them to take it on and live from the business whilst enabling you to exit the business comfortably?

Although your intention may not be to sell soon, a prospective buyer making you an unexpected offer could change your mind. If you’re making profits that are higher than anticipated, and you already know and understand the value of your business, you’ll be able to make an informed decision on whether to sell at that time.

The date you want to sell

Is it for retirement in 20 years’ time? Is it in 5 years’ time so you can spend more time with the grandchildren or emigrate to Australia? Or is it in 10 years’ time so you can make a tidy profit and start up another business in another sector?

Whatever the plan is, having a rough date in mind will enable you to think strategically and make better decisions.  Try to think backwards, for example if you know the business must be worth £10m in 5 years’ time, how much is it worth now? And what profitability or revenue growth do you need to achieve in the next 5 years to get there?

Once you have developed an exit plan, it is important to identify how you will improve the business financials to reach the targets you have set for yourself. You will have a lot more options for an exit if your business is successful and you do what you do well!

Areas to think about include:

Cutting Costs

What unnecessary expenses are you incurring in the business that could be reduced? Can you negotiate with suppliers to obtain better prices for your purchases or overheads?

Maximising Sales

Are there any markets or locations you could move into to increase sales? Perhaps the use of social media or website sales are a significant opportunity for you? Or exporting? Or diversification of your product(s) into a different market or diversification of your business into a different industry? There is always something you can do to sell more.

Focus on Margins

Do not undersell yourself and make sure you know what your unique selling point (USP) is. You should then make sure your customers value that USP and recognise that your product(s) are stronger than your competition, even if they are cheaper, as a result.

Growing the Business

Should you be thinking about acquisition? Growing organically through your own efforts can take a long time whereas growing through acquisition can give you an instant increase. Talk to my colleague Mark Neath if you want to talk about potential acquisitions, he may know just the acquisition to compliment your growing business.

Reporting and Software

Have you identified the Key Performance Indicators (KPIs) that are critical for you to monitor to achieve success? Are you getting the financial information you need on a timely basis to enable you to make quick, strategic decisions? Or is your software not fit for purpose? Make sure it does everything you need it to, there is software out there that can if yours doesn’t.

My colleague Scott in our Corporate Finance Team regularly supports business owners in selling their business and has written this useful article of things to think about before selling which includes the tax implications. The Top Things to know before selling your Business – Old Mill (om.uk)

Reach out to us at Old Mill if you want to discuss exit planning or would like some support in achieving your business goals click here…