Planning a good exit

19th December 2018

In our experience, business owners should start getting their house in order five years before they intend to leave their business. So, with a festive break on the horizon giving many of us a rare opportunity to pause for thought, now might be a good time to consider when and how you plan to exit your organisation.

Why plan?

The majority of small business leaders (64%) in the UK do not have a succession plan in place, according to research by specialist business lender, Aldermore. Without a smooth exit plan, your company could falter when you leave, and you may not reap the full rewards from your hard work. So, what’s the right approach?

Considerable time, effort and energy goes into building a business – but succession planning is often overlooked, particularly among owner-managed businesses. Aldermore’s survey, conducted among over 1,000 decision-makers, found most had no clear plan in place to ensure their business operates smoothly following the retirement of key executives. Over 60% had not planned their exit strategy. Of those who have a succession plan, 48% intend to either hand the reins to other senior executives (25%) or to family members (23%) in the next four years. Where do you sit in those statistics?

A five-year plan

For a smooth exit that will leave you and your business in good shape and ensure you maximize the value, start planning five years ahead. Much like selling a house, there are preparations that will be needed to show your asset off to best effect.

For owner-managed businesses, walking away without the right preparation could threaten the business’ very foundations. Alex Hazell, Business Development Manager at Aldermore, agrees: “It’s vital a succession strategy is planned out to ensure businesses do not suffer when changes to key executives occur. All too often, deals fail because insufficient thought has been given to implementing and funding a change in ownership.”

Five years out:

  • Scope out your exit strategy – when you will go, who will take on the business, what money do you need to fund your next move/retirement?
  • Seek professional advice about your options and any early gaps that need addressing

Three years out:

  • Develop a detailed plan with support from advisers
  • Will anyone purchase your business? Is it saleable? Take advice on how to maximise value
  • Consider the readiness of your successors – is the management team ready/willing to take on the business? Is there a natural successor in your family – do they want to step into your shoes? Do they have the management competencies required?
  • What gaps in your senior team may need to be filled to enable a successful sale?
  • Plan your personal tax and wealth strategies

12 months out:

  • Start to implement your strategy
  • Take advice on marketing the business for sale, if appropriate
  • Agree outline terms for your exit with your successors, including the price and timeframe
  • Seek advice on funding the change in ownership.

Starting early puts you in control of the decisions. All too often, our first meeting to discuss an exit strategy with clients is when the timing of their departure has been forced by a pressing wish to retire, often caused by a health scare, limiting the amount of control they have over the process.

While we recognise that owner managers are often busy focusing on the here and now, planning early for your retirement, while you’re fit and well, gives you the best chance to secure the right future for you and your business. With sufficient time, work can be done to address weaknesses in the business, improve financial and operational stability, and enable a smooth exit.

To find out more about how we can help with your succession planning, contact Greg Philp on greg.philp@hboltd.co.uk

This article first appeared in the Autumn 2018 edition of The Bottom Line. To download this newsletter, plus other editions, click here.