Exit Planning

...a fundamental necessity for every business
“ If you work out the time it takes to plan your company’s exit, it often works out as the single most profitable exercise you ever carry out ”

The Problem

Without exception, every business owner will transfer their business interests either during their lifetime or in the event of death or incapacity.

For this reason, exit planning should always be an integral part of your big plan and it will pay huge dividends if you begin your preparations early. A part-time FD can help with exit planning strategies and advise on the most suitable route forward.

In a nutshell you have four principle options when you eventually come to transfer your business interests. You may:

1. Transfer ownership to your children
2. Sell the business to other owners or employees
3. Sell to a third party; or
4. Liquidate

So the question is not ‘whether’ you should begin the exit planning process but ‘when’ you should begin.
The reason many business owners leave their preparations until too late and only achieve a fraction of the potential sale price they could have achieved is really down to 3 things:

1. Lack of time (entrepreneurs are always too busy)
2. Lack of expert knowledge
3. Failure to appreciate fully the importance of starting the process early – this is where the services of a part-time FD can be particularly useful.

Although a lot of business owners start off with a vague plan to sell their business at ‘some point down the line’, most will never delve a level deeper and start to think about the implementation steps they need to follow to start moving towards their goal.

Where does a part-time FD start helping you plan a successful exit?

It all starts with some ‘big’ questions. Have you ever asked yourself:

• How much money do you need to enjoy the lifestyle you expect when you retire?
• What kind of company will be interested in acquiring your business (is it just a hunch you have or are have you examined the possibilities scientifically?)
• Are you clear about what potential buyers will be looking for when you come to market your business?
• Have you created a strategy to maximise your company’s equity value to ensure that you achieve the highest possible sale price?
• Do you know the different options open to you when you come to sell your business?
• Are you aware of how to market your business so that you maximise your exposure to potential buyers?

Getting your head around your proposed exit route has significant practical benefits too. It is far more enjoyable (and less stressful) to run a business which has a clear sense of direction and common purpose. Many entrepreneurs allow the urgent day to day demands of the business to set the company’s agenda and direction. The business owner can find themselves ‘doing a job’ rather than ‘running a business’ and although this outcome is nearly always well intentioned, invariably it has a negative impact on the entire business.

It is common for business owners to procrastinate when it comes to exit planning as many have the sense that selling their business is somehow disloyal to the cause or implies to those around them that they ‘want out’. It is important not to get to a point where your objective is to sell your business as a way to escape a bad situation. Your aim should always be to build on the positive: define the assets you possess and work on optimising those assets according to your strategic plan.

In simple terms, you need to know where you are heading, if not before you start your journey, as early on as possible. As soon as you are clear on the direction you are headed, you will be able to relax more and enjoy the ride!

The Solution

The exit planning process can often be complex and involved. Attempting to devise your own exit strategy without the advice of professionals with years of experience selling businesses often means entrepreneurs end up selling their company for much less than they should.

Planning a profitable exit doesn’t have to cost a fortune and nor does it have to take you away from running your business day to day.

One of our part-time FDs (Stuart Spink) recently masterminded the successful sale of Kiddicare to Morrisons for £70m (and a remarkable 20x profit multiple). The exit planning process was conducted over approximately 7 months and demonstrates the importance of having the right team and a well orchestrated plan.

As part of our part-time FD’s exit planning process we will work with you to complete a comprehensive review of your business which will include:

Establishing the value of your company

  • Investigating your company’s assets
  • Piecing together a robust exit plan
  • Discussing the goals and objectives of the business owner/shareholders
  • Talking through the emotional challenges which will inevitably transpire (this is where it is especially helpful to have an objective advisor)
  • Identifying potential successors with the necessary skills to take the business forward
  • Creating a plan to incentivise, train and support successors in line with the future plans for the business
  • Devising a compensation plan to reward key team members for their role in growing the business
  • Investigating and selecting an appropriate structure for the business transfer
  • Building in a contingency plan as things rarely progress as you expect
  • Discussing whether your customer base will willingly transfer to new ownership
  • Outlining your options regarding the proceeds from the sale of the business
  • Deciding whether you wish to make a clean break from the business or continue working part-time for the company
  • Thinking through the impact your departure will have on the value of the business
  • Deciding what elements of the business you wish to sell
  • Maintaining the value of your business in the run up to selling (and not taking your eye off the ball)
  • Maintaining customer loyalty (retention) in the run up to selling (declining loyalty will negatively impact the value of the business)
  • Keeping your key team members in the picture – uncertainty and speculation often leads to lack of productivity and even resignations
  • Tax planning to ensure you have thought through all the options in order to limit your tax liability
  • Making sure you have the right team of professionals around you to through the sale process to ensure you receive the optimal sale price

    • Benefits To The CEO, MD and Senior Team

    Exit planning should be one of the most fundamental and critical concerns for any entrepreneur. Selling your business is the tangible realisation of the huge value you have created usually over many years.

    With the right planning your exit should mean that you are in a position to realise some significant personal goals, create a retirement nest egg for yourself and your family and secure your future. For many, a profitable exit signifies the ultimate achievement in life and a ticket to a carefree and relaxed retirement.

    With the correct planning, your exit can also minimise or even eliminate capital gains, estate and income taxes.

    Despite the rewards brought about by thorough exit planning, it always amazes us how little focus business owners give to this topic. We would urge you to be the exception and contact us to see how we can help you maximise the value of your business, regardless of the prevailing economic climate.

    To watch our webinar presentation: ‘A High Calibre Part-time Finance Director For A Fraction Of The Cost Of An In-house FD’ and find out how an entrepreneurially-minded part-time FD with big business experience and a world-class collaborative support network can help you accelerate your growth plans and guard against the major risks facing all businesses in the current climate, please register here.