Thinking about ‘exiting’ or selling your business?

Thinking about ‘exiting’ or selling your business?

October 27, 2023

Exiting or selling your business is a very hard prospect. For Entrepreneurs and SME business owners more generally, a lot of hard work goes into creating a successful business over a long period of time i.e. 

  • long days
  • late nights
  • working weekends
  • missing birthdays
  • stress
  • cashflow issues
  • having to deal with emergencies when on holidays etc.  

So when after several years, you finally achieve some success and financial security with your business, why would you give up on the ‘extra’ financial rewards that you have worked so hard to achieve?

– by NOT thinking about or considering ‘exit’ options for selling your business?

Some recent business statistics indicate that ONLY 30% of SME businesses ever reach the point of ‘exiting’ their business, and only 5% of that number actually have a successful ‘exit’ ! 

And remember a successful ‘exit’ means that you are getting paid TWICE i.e. not just your normal remuneration, but you also receive payment for the ‘value’ that a third party has considered that your business is worth to them.

WHAT DOES AN ‘EXIT’ LOOK LIKE?

Every business owner WILL exit their at some point, so isn’t it better for YOU to ‘exit’ your business rather than you be ‘exited’ from your business?

In broad terms, there are a number of exit options for a business owner including: 

  1. through ill health or retirement
  2. by selling it to the existing Team i.e. via a management buyout (MBO) process
  3. by selling it to a competitor or a business within your sector (trade sale)
  4. by selling it to an investor, whether an individual, venture capital trust or private equity acquirer

By considering HOW you want to ‘exit’ and planning for it ahead of time, you can proactively ensure that you avoid getting NO value for your business.

It also means that you can start to clarify and identify who AND where your purchasers may be.

HOW DO WE PLAN FOR AN ‘EXIT’ WHILE RUNNING OUR BUSINESS?

When we start discussions about a business exit, there can be a fear that this means that the business owner will be leaving the business imminently, but nothing could be further from the truth.

Thinking about, considering, AND planning for your exit from your business is actually a positive for you and your Team, as it will result in benefits for all:

  1. reduce the stresses and workload on the business owner  
  2. increase the responsibilities and opportunities for your Team members (to their benefit)
  3. create a more stable and resilient business, meaning a more profitable business while working towards your planned exit, AND
  4. simplify the exit process when it occurs (in whatever format), and more likely minimise the issues and challenges that may reduce the ‘value’ that can be achieved 

From a purely financial point of view, there are a number of really key issues that need to be considered and planned for by a business owner in order to exit with the maximum business ‘value’, such as  

  1. Business Owner – the business cannot be dependent on the business owner i.e. YOU – there is little value in this for an acquirer!
  2. Plan your ‘Exit’ Options – consider your exit options and start planning at least 3 to 5 years ahead
  3. Basic Financials – ensure that ALL of the basic financials are in order and can be simply and easily reviewed and checked e.g. accounts software/systems, annual accounts, VAT returns, CIS Returns, payroll data, corporation tax returns, etc. 
  4. Key Business Analysis – understand that further analysis of your financial information will be required by a purchaser e.g. 
  • business analysis (who are your customers, how long have they been customers, are they contracted, what are your margins)
  • key performance Indicators (KPIs)
  • management accounts
  • budgets for 1 / 2 years
  • nonfinancial e.g. how successful is your marketing

5. Disputes or Problems – any disputes, or issues with HMRC, employees, customers/suppliers will be detrimental to the value of your business. Similarly, issues around shareholdings and ownership can be problematic.

6. Plan your Tax Position – ensure that the business owner’s tax planning is in order ahead of the exit e.g. can you obtain entrepreneurs relief and/or do you qualify?

So where are you with your business and when will you start planning for your own business ‘exit’ ?