Preparing your business for an exit strategy is a process that requires careful planning and execution. It's crucial to identify your goals early on and choose the most suitable exit path. This can include selling your business, passing it on to the next generation, or even going public.
Moreover, ensuring your business is in optimal condition before your departure is also important. This could mean streamlining operations, boosting profitability, or building a strong leadership team. Remember, the success of an exit strategy is usually determined long before the exit itself. So, start planning early to make sure you maximise both your financial return and your legacy.
SELLING A BUSINESS INVOLVES VARIOUS STEPS:
1. PREPARING FOR YOUR EXIT Start planning your business exit strategy early, ideally when you first establish your business. Identify a target year or other objectives to work towards. If you retire at 60, consider starting your exit plan at 55. You need to be realistic about the value of your business and understand why someone would want to purchase it. Often, small businesses are sold through management buyouts or family successions.
2. SHAREHOLDER GOALS DURING EXIT As a shareholder, you should exit your business to achieve financial security and minimise risks. This is especially true if you're planning to retire. You may have to accept less than the highest possible price for a successful sale. Alternatively, you can maximise the selling price, pass on the business to a family member, or sell to a management team you trust.
3. COMPANY GOALS DURING EXIT From a company perspective, an exit could provide the capital needed for growth, improve market position, or allow your business to enter new markets. It could also increase economies of scale or provide employees better job security or career development prospects.
4. MANAGEMENT GOALS DURING EXIT Management might want to end their involvement in the business, which could require them to remain involved for a certain period. Conversely, they should continue running the business, especially if it's heavily reliant on their skills. However, holding on to the business for too long could lead to stagnation and loss of value.
5. GETTING YOUR BUSINESS READY FOR EXIT You should aim to increase profits year-on-year and ensure all accounts are up-to-date. Expand your range of customers and suppliers, secure long-term contracts and protect your intellectual property rights. You should also seek tax advice early to maximise relief for Capital Gains Tax.
6. POTENTIAL BUSINESS EXIT ROUTES Several possible exit routes include selling to another business, selling to a management team, transferring the business to family members, floating the business on a stock market, merging with another business, or liquidation.
7. PLANNING A TRADE SALE A trade sale is often the best way to exit a small firm. Identify potential buyers who could benefit from acquiring your business and develop characteristics that buyers would find attractive.
8. PLANNING A MANAGEMENT BUYOUT (MBO) If you're considering an MBO, train your management team and add value to the company. Consider structuring the deal to allow the team to acquire the business in stages.
9. PLANNING A FAMILY SUCCESSION Family succession can be complex and emotional. Identify potential successors and plan their development. Keep other employees informed and discuss your future expectations with your successor. Also, consider your tax position as early as possible to optimise potential reliefs. Remember, an exit from your business is inevitable; it's just a matter of when and how.
An early exit strategy can ensure a smooth transition and maximise profits.
Letting go of your business can be nervewracking and might consume more time than you anticipated. Keeping your current operations running smoothly while navigating the sale is crucial. A well-thought-out plan is vital to ensure a favourable exit, driven by choice rather than necessity, such as financial constraints or inability to maintain your managerial role.
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