How to develop a business exit plan?

7 Apr 2022

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In this article we identify some important considerations for business owners who are thinking about exiting their business.

Business exit solutions

Each business owner is in a unique position, both in terms of the performance of the business at any one time and their personal aspirations for their own lifestyle. This means there is never any ‘one size fits all’ approach for an exit and there are often multiple options to consider.

Succession planning

For instance, there may be a second generation coming through the business, or a tier of management who you believe is capable of taking the business forward. You would therefore need to consider the financing, taxation and practical impacts of succession planning.

Capital injection

Alternatively, the business may need a further injection of capital to allow it to capitalise on growth opportunities in the market and therefore outside investment from private equity or institutional investors (through a listing on AIM for example) may be options.

Sell to outside third parties

Conversely, you might have been all-consumed with running the business for such a long time that you may want to seek to exit completely and find a new home for the business to thrive, in which case a trade sale would likely be the preferred option. Many seasoned entrepreneurs that have seen the credit crunch, Brexit and Covid-19 may be considering how they de-risk their investment in the future.

Sell to employees

Finally, selling a business to the employees via an employee ownership trust is becoming an increasingly popular option. For more information, please read: Have you considered employee ownership for your business?

Business exit plan – next steps

Position your business

If you have been approached by or identified a potential buyer, whether that be internal or external, you need to be able to position the business in the most advantageous way to maximise your exit value. For instance, a private equity buyer will be keen to understand the growth opportunities in the marketplace and why your business is the right one to capitalise on those opportunities.

In this situation you also need to ensure that there is a broad skill base across the management team and that all roads do not lead back to you as the owner. It is essential that your management team can continue to execute the business strategy without your input. It is also important that you don’t put all your eggs in one basket. Whilst you may believe that one exit route is the right one at this point (and, unfortunately, deals do fail), you need to be able to take stock and reassess your options at a future date.

Select the right advisers

Whatever happens, don’t underestimate the intensity of a deal process. Once you’ve pushed the button, it will be like being on a runaway train, both emotionally and practically. It is imperative that you have the right advisers around you to meticulously plan and prepare the business before you do ‘push the button’. It will become apparent through that planning process as to whether you really do have the skills in-house.

You need to consider the impact on the business of having senior people effectively performing two roles through the due diligence and deal negotiation period – without the right advisers around you, there is a risk that business performance could suffer.

Have a clear vision for the future success of your business

The history of your business and its journey is incredibly important to any buyer. However, your positioning for the future and where the story leads to is almost more important. Your buyer needs to understand this vision and why the business will be able to take advantage of the opportunities you present. Try to make sure that you, as the owner, aren’t ‘the’ story. You don’t want them to buy you, you want them to buy the business.

If you would like advice on optimising your business for sale, contact one of our business advisory experts, or speak to Jamie Lane.