Leaving behind everything you’ve built up in your business is a tall order, so it’s vital that you have a plan to execute when leaving your business. There needs to be a plan of action that’s aligned to your key goals, aims, and financial commitments as the owner. This means you need to create a long-term exit strategy with your advisers, as selling a business is complex with many different elements that all need to be considered.
Creating your exit strategy won’t happen overnight, however, having a plan gives you a guide along the way, and you can tweak your plan where necessary.
What should I consider?
When writing your plan there are a number of things to consider, they include:
What do you need to sell your business for?
As the vendor, you need to come up with an asking price for the business. Your sale price isn’t just driven by market forces. It’s also dependent on how much money you need to gain from the business sale.
If your aim is to start a new business, think about how much capital will be needed to get this idea off the ground. If your goal is to retire, you need to work out the size of the lump sum that will be needed. You could live for 20 or 30 years post retirement, so any cash raised has to provide you with your desired income and lifestyle for a number of years. Don’t forget to allow for any tax that may be payable on profits you’ve made. We can help you estimate that.
Work out what funds you will need to retire or invest, and make this total cost the benchmark for your ideal sale price. If you’d need 10 million over 20 years, you know that your asking price must leave you with more than that after tax to provide a cushion for your finances.
What is the business worth?
The next step is to understand the value of the business on the open market. This means talking to your accountant who may advise you to talk to a M&A (mergers and acquisitions) expert.
Value is a complex measurement. It can be influenced by your brand’s reputation, the business’ current financial health, the worth of your company assets, or the skill of your existing team. A change in any of these elements can have a huge impact on your sale value – and, as a result, the size of the profit that you and your departing shareholders will make from the sale.
If your current value is projected as 8 million, but your initial asking price must be 10 million or more, there’s some work to do to add this value and boost your final sale price.
Who will be your successor?
Every business needs a safe pair of hands at the top. Thinking about who will take over the reins, and how to make this transition run smoothly, is a vital part of your exit strategy.
A succession plan explains your own plans for retirement, who will take over your role, and the timescales for this succession process. It may be that a family member is your intended successor. It could be that your intended buyer will take on the owner-manager role. Or it could be that a current member of your executive team is ready and willing to step into your shoes. Make sure you’re clear about who the new boss will be, and how (and when) this person will succeed you as the leader of the business.
What’s the timeline?
Selling your business is rarely something that happens quickly. Preparing for a sale can often begin years before the proposed date of exit, so it’s important to be clear about your exit strategy and the key dates along the main timeline.
A five-year exit strategy is common, and you should allow at least two years to complete the process from beginning to end. Selling up may seem like the final scene in your business play, but in fact it’s only the beginning of a long and protracted final act. The more you can do to plan each step of the exit, the more successful your final sale will be.
Needing to create an exit strategy?
If you think now is the time to start planning your exit, let us know. We can help you value your business, work out your sale price, and achieve the best possible sale price.