Why exit planning takes 2 – 3 years (and why less time costs you more!)

“Do I really need years to plan?”

It’s a question I hear often from business owners: “Surely we don’t need two or three years to plan an exit? Isn’t six months enough?”

The answer: technically, yes—you CAN probably rush an exit in under a year. But you’ll definitely pay for it.

• In higher stress
• In higher professional fees
• In higher likelihood of failure

not to mention missed tax planning opportunities and ultimately in a lower business value (andtherefore) price for your business!

That’s why I always recommend IDEALLY 2–3 years of advance planning if you want to maximise thevalue of your business AND your own personal wealth and reward.

WHY do I think Exit planning (or being ‘Exit ready) is the smart £ decision?

1. Tax planning takes time
   
   When it comes to selling a business, getting a proper handle on maximising the available tax reliefs and optimum tax efficient structure ahead of time – is SO important.
   
   There are valuable tax reliefs available, for example Entrepreneurs’ Relief (Business Asset Disposal Relief) which involves rules, challenges and time limits to successfully obtain the relief. At the same time the ideal structuring options, which may involve your spouse, family investment companies or holding companies (and more), all have qualification periods built in to be effective.
   
   So if you only start planning 6–9 months before selling and are therefore only actively considering the tax impacts at that point, you may already have ‘missed the boat’ on these reliefs and structuring options.
   
   And that can mean losing hundreds of thousands in unnecessary tax on your sale or exit – unless you are willing to push your sale or exit out another 12 or 24 months into the future!
   
   Are you ?. .
   
2. Practical reorganisation isn’t instant
   
   Many SME businesses have grown and developed successfully over a period of time in ways that aren’t necessarily “exit ready.”
   
   Therefore the common issues that may arise will include:

•Property held in the business. Quite often a business owner will use funds in the business to acquire an office property – which may make sense where that is the office that the business operates out of.

However a potential Buyer very likely will NOT want your property, so it needs to be
transferred to a separate company ahead of a sale process.

• Non-core assets. Similarly there may be investments, subsidiaries or even retail investment portfolios in the business. Again a Buyer will quite often NOT want to purchase these assets, so consideration needs to be taken as to whether to liquidate or transfer these ahead of the sale process.

• Shareholding complications. Old minority shareholders may need to be bought out or
agreements updated with “drag along” or “tag along” clauses, neither of which can be simple or easy negotiations – so leaving them until you are in the middle of a sale process would NOT be recommended.

• Excess cash. Quite often a business owner may have built up funds over the years within the business that are held for a ‘rainy day’.

A Buyer will NOT require this level of cash in the business, so it needs to be extracted as tax
efficiently as possible i.e. leaving it to the last minute may result in substantial income tax
liabilities that are unnecessary with some advance planning.

Each of these common challenges take time to resolve, especially where there are legal issues or tax liabilities involved.

Leave it too late, and you’ll either rush through expensive fixes or see your sale fall apart more often than not.

3. Building business value isn’t a quick job
   Buyers pay more for businesses that are resilient, systemised and not dependent on the owner, however getting your business to this point takes time.
   
   You’ll need months or years and NOT weeks to achieve this:
   
   • Reduce your personal involvement in day to day operations
   • Build, develop and empower your management team.
   • Implement internal processes that standardise how things get done across the business
   • Maximise your use of technology and software for the purpose of automating tasks
   • Strengthen your financial reporting so decisions are based on clear and up to date information – NOT gut feel.
   
   These are exactly the improvements that add value and attract the right Buyers, while also financially benefiting you through increased profitability, efficiency gains etc leading up to the sale itself.
   
   Ensure that the you don’t leave it all to the last stretch, when the impact of these changes will only for the Buyer—NOT YOU!
   
4. Managing stress and cost
   
   Let’s be clear: selling your business is a stressful experience – no matter what!
   
   Even in the best circumstances, you’ll spend 6–9 months juggling negotiations, due diligence requests and buyer demands – all while still running your business in order to continue hitting those targets that will support your sale price.

If you leave the preparation too late, then you will also be paying a team of external advisors
significant professional fees to fix historical problems at speed. And the stress of trying to manage all of these different elements at once e.g. the deal and the business, can be quite overwhelming.

By spreading the preparation over 2–3 years, you can take a step-by-step approach, minimise the unnecessary ‘firefighting’ and then focus your energy where it counts at this point – finding the RIGHT Buyer and ensuring it successfully completes!

So to recap – WHY start early?

Yes, you can plan an exit in 6–9 months. But the costs are clear:

• Lost tax reliefs.
• Rushed and expensive tax restructuring.
• Lower business value.
• Higher levels of stress.
• Less likelihood of a successful sale or exit

OR – you can give yourself 2–3 years.

You’ll create a more valuable business that Buyers will pay for, keep more of the sale proceeds up front, improve your business along the way and make the process far less stressful for you and your family.

Surely when you look at it that way, starting early isn’t just sensible—it’s a no-brainer!

Take the NEXT STEP .. . ..

If you’re even thinking about an exit in the next 3–5 years, NOW is the time to start planning.

Download our FREE guide Exiting Your Business: What Every SME Owner Should Know

Find out exactly WHAT needs to be done, WHEN—and HOW to start without overwhelming yourself!

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