Many business owners already know their exit strategy, whether it’s through a trade sale, private equity exit, Management Buyout, Employee Ownership Trust or family succession. However, many still don’t allow themselves enough time to properly prepare for that exit or consider fully all of their exit options.

Having time to prepare for exit can be crucial to finding potential buyers, maximising value, speeding up the sale process, tax planning, getting the best outcome and ensuring a smooth transition. In this blog we’ll look at ten steps to get your business exit ready.

1. Financials

Poor financial information sends the wrong message to potential buyers, employees and management. Good quality, regular, up to date financial reporting makes good sense whilst running and growing a business and it will also help potential buyers see the reliability of your financial results more easily.

If you are selling your business, looking at an IPO or MBO, then financial due diligence on your business will be a big part of the process. If you are looking to sell a business and your accounts have been audited, that can provide reassurance to a potential purchaser. An audit adds credibility to financial statements which can in turn enhance value. It may also reduce the amount of due diligence a purchaser might seek to do because there has been regular external scrutiny of the figures.

Find out more in our guide ‘Is your business exit ready’

2. Tax planning 

The tax you pay on exit can have a huge impact on how much money you exit with.

Planning well in advance of your exit, ensures you exit your business with a higher proportion of the sale proceeds, enabling you and your family to benefit in the most tax efficient way.

The earlier you plan, the better because some of the conditions that will need to be met to utilise tax reliefs and minimise the tax implications on exit need to be in place in the years ahead of a sale.

Seek specialist corporate tax advice well before exiting your business.

3. Business structure

If your company structure is complicated, it may be worthwhile ‘tidying up’ your business model well in advance of your exit and succession. You may want to look at merging parts of the group for simplicity before a business sale or split off assets such as property prior to sale.

Exit planning can be complex and reviewing your business structure as part of your exit planning ensures you will be in the best position both commercially and from a tax perspective when you begin your exit process.

Find out more in our ‘Business restructuring for exit guide’.

4. Seller due diligence

If you are looking to sell via a trade sale, to private equity or via an MBO, then conducting seller due diligence will be important.

Seller due diligence includes collecting information and ensuring it’s complete and accurate for a potential buyer to look at during their own buyer due diligence process.

The due diligence process in a business transaction can be long. However, early preparation by a seller will allow for quick and detailed responses to the buyer’s due diligence requests which will ultimately assist in speeding up the process of the transaction and saving a seller both time and legal fees.

5. Increasing business value

Increasing business value should be a key part of your exit strategy.

Many business valuation methods use a multiple of earnings approach to calculate the value of a business for potential sale. A higher multiple will be achieved when a buyer attaches less risk to the ability of the business to maintain its earnings into the future. The multiple used therefore has a significant impact on the value achieved for your business – but there is no scientific formula or calculation used to determine precisely the ‘correct’ multiple.

External factors will influence the multiple – such as the type of industry you operate in or the strategic value of your company to a prospective buy. However, many internal factors within your control will also be instrumental in determining the value multiple.

6. Stepping back from the business

We know that stepping back from a business that’s been an integral part of your life is complex. It’s not surprising then that many business owners delay their exit planning until the very last minute.

Running a business that isn’t dependent on you, the owner, is crucial before you attempt to exit the business. Your business needs to be able to survive without you, as this can significantly affect the handover period, the future of the business and the value when you sell.

7. Your successor

If you don’t already have a clear successor, you need to find one. Whether you decide to choose someone internally or recruit externally, finding someone that can help you let go is vitally important. Your role can then change and develop over time on the run up to your exit.

If your successor is a family member, then planning well ahead could give them time to gain valuable experience in the business or elsewhere. Emotions can be heavily involved in this type of succession, so take a step back and check that it’s the right thing to do.

8. Your people

People are the key asset in most businesses. Ensuring you build the right management and they are motivated can be crucial to achieving a smooth exit and maximum value for your business.

If the right people can’t be found from within the organisation, business owners should be clear on the people they need to ‘plug the gaps’ and bring in new management and team members to do so.

Putting systems in place such as employee share schemes can help to secure employees for the future, giving a new owner some peace of mind. Change often brings uncertainty. Managing this and ensuring continuity is key to ensure it’s ‘business as usual’.

9. Investment & growth

It’s important to not put off big projects that will add long-term value to the business, even if you’re planning your exit. The temptation is to not spend the money before a sale or buy-out, but often large-scale projects can add value and make your business more attractive to external buyers.

It’s far better to continue on-going investment on the run up to transition than to stand still. That’s easier said than done when often economic challenges mean that many businesses standstill, or investment is made more difficult.

10. Identifying potential buyers

It’s worth considering and being able to identify early who potential buyers for your business may be when you come to exit. Potential buyers can come from different sources including your own knowledge, trade directories, your existing management team or professional corporate finance advisors such as Barnes Roffe.

Summary

As a business owner that has spent years building a business, it can be a huge decision to exit that business. However, in order you get the best outcome for all the hard work, it’s critical that you leave enough time and are well prepared to achieve a successful sale or exit.

Preparing for exit and having a clear succession plan will ensure you get the best price when selling the business, your employees and management team feel secure, you maximise how much money you exit with and a smooth sales process and transition takes place.

But beware of trying to handle the entire process yourself. Exiting your business in the best way for you and your business and maximising your return on exit can be a long and distracting process. If you try and do it yourself, it could have a negative impact on your business performance and even your mental and physical wellbeing.

A corporate finance advisor and accountant, such as Barnes Roffe, helps take the heavy lifting off you from the beginning to the end of the process, so that you can continue to focus on what you are good at – running a successful business. We have a dedicated team that focuses purely on these types of events, which are often once in a lifetime.

The exit process tends to be time consuming and stressful at times. Having the experience of a specialist can help you navigate the peaks and troughs of an exit successfully. Contact us today for more help and advice on getting your business exit ready.

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