Selling your business

Planning an exit strategy can pay big dividends

Private businesses passing to the next generation is becoming increasingly rare. Many owners look to cash in their profits by selling: to the public through a listing, to a competitor through a trade sale, or to staff through a management buy-out.

It is all a long and complex procedure and the first two of those routes demand elaborate preparation. It pays to take time to ensure your exit strategy is watertight before going to market.

To maximise the value of your business it’s essential to think about how you’ll leave it further down the line.

Carefully planning your exit from the business can help you to:

mould your business into the ideal shape for your chosen exit option - maximising the value you get from it

groom successors if they’re coming from within the business - whether they’re a family member or part of your management team

exit at a time of your choosing, when the business is doing well and the market conditions are advantageous

Ideally, an exit strategy should be included in a start-up business plan. It can then be reviewed and revised whenever you work on your annual business plan and budget - and you can navigate your business in the direction that your exit option demands.
If you manage an existing business and don’t have an exit plan, you should now think about what your preferred exit option might be - and consider whether you could change the way you run your business to help you achieve it.

The way in which you exit could affect:

the value you and other shareholders realise from the business

whether you receive a cash deal, deferred or staged payments

the future success of the business and

its products or services

whether you retain any involvement in or control of your business your tax liabilities

It is easy to forget that the decisions you make today will not only affect how successfully your business gets off the ground, but can also seriously impact on your eventual exit from the business.

Planning to exit

Business form - the legal structure you choose can restrict your exit options and affect how potential buyers view the business. For example, a sole trader can simply close the business and pay off any outstanding liabilities but a limited company with a separate legal identity will probably be more attractive to potential buyers.

Articles of Association - these set out the rules for running the company affairs. If they are too restrictive they could limit what the business can and can’t do. This could put off potential buyers or investors who are looking to diversify.
Partnership agreements - these may specify what will happen if one of the partners wants to exit the business, for example due to ill health or retirement.

Property agreements - these may be difficult to get out of, if you need to, without suitable break clauses or the right to assign your agreement to another party.

Shareholders - the involvement of shareholders with voting or preferential rights can make it more complicated for an outside investor or buyer to take over the business.

Capital and ownership structure - straightforward structures can help make your business more attractive and can minimise potential barriers to sale.

Accounting procedures - good accounts will give potential buyers and investors more confidence in your business and make completing the sales process easier.

Employee/customer/supplier contracts - clear, simple contracts for all business relationships can help avoid disputes, clarify responsibilities and make it easy for potential buyers to see what they would be taking on.