When should I exit my business?

This is a question I get asked regularly. At what point is the best time to sell, close, or float a company? How long should you wait from establishment before you part ways with your business?

The truth is, it depends.

It depends on the type of business, the industry, and your own personal goals and objectives.

In a lifestyle business i.e. one that simply earns enough to provide the owner with a respectable income, the owner might decide to close shop when they are at retirement age – with no worries about trying to identify, contact, and negotiate with potential buyers for the business.

However, not all businesses can take this route – and neither will the owners wish to.

Many business owners will want to receive compensation for the blood, sweat, and tears that they have put into the business over the years in the form of a ‘payout’ from the new owners. This obviously involves a lot of prior planning, preparation, and negotiation – in fact, business owners often find that the point at which they choose to exit their business is often their most stressful period of management.

That’s why it is essential for these types of businesses to plan their exit strategies well in advance when the owner is in a less stressful environment and in possession of a much more objective, calm mindset.

We often advise that the optimum time period from planning to actually exiting a business is around 5 years. But, of course, this can vary depending on the business, the industry, and the goals and objectives of the business owner(s), as aforementioned.

As far as floating a company is concerned, this is, in most cases, even more demanding than selling a company on the open market or to internal or external management teams.

It is highly unlikely that you will be able to trade your company shares on the London Stock Exchange given that this is dominated by enormous corporations. A more realistic expectation would be to float on the AIM or PLUS.

But without secure earning streams and strong growth prospects you can basically eliminate the option of floating entirely.

Again, whilst it is hard to predict whether your organisation will be suitable for flotation during the start-up phase, it’s always a good idea to plan well ahead and work towards your exit strategy from day one – priming your company for the ultimate day of reckoning.

So in answer to the question: what’s the best point to exit a business? Again, it depends – but as a general rule, it should be during a positive time for the company but not too positive in the sense that there must still remain prospects for growth under the new owner(s).

To help you determine that ‘optimal point’, give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk today. I’ve dealt with hundreds of exit and succession cases over the years, and I can help you to maximise the value that you receive from your business.

Fact: Most Exit Strategies Fail

Before I begin, let me say that ours don’t.

This conclusion is from data collected over industry-wide studies. They show that most family-owned businesses do not achieve the anticipated or desired results from their exit strategies.

No matter what their method of exit, be it succession, management buy-in, or management buy-out, they build a (seemingly) solid exit strategy only to discover that it does not reflect reality for one reason or another.

The reason for this?

Many exit strategies resemble more of a wish list than that of a realistic plan. People’s emotional attachment to their business means they feel it is worth more than it actually is.

Using external professionals and consultants can therefore help to inject a sense of objectivity into the valuation and planning process, ensuring that goals/objectives remain within the realms of reality.

Aside from the fact that business owners can often overvalue their companies, there is also an issue with flexibility in most exit plans. Too many exit plans are rigid and inflexible; they do not sufficiently allow for unexpected changes in the economic climate, the industry, or within the business itself.

You MUST be prepared to alter and re-work your exit plan as time goes by to ensure that it remains achievable. One of the major reasons for exit strategy failure is due to changes in the economic and business climate that have not been anticipated or accounted for in the objectives of the exit plan.

This is another good reason to bring an external professional or consultant on-board during the exit planning and implementation process. Professionals and consultants can help to tweak your exit plan according to market and industry conditions, or changes that occur within the business itself. Their objectivity, once again, also helps in that goals realistically reflect the conditions surrounding the business – not goals simply linked to what the business owner(s) would like to achieve.

See, the concept of failure is a product of predetermined goals and objectives. When you read the title of this article, it would have been reasonable for you to assume that by ‘fail’ we implied that exit strategies are the cause of this ‘failure’. When, in fact, it is simply the case that exit strategies ‘set the goalposts’ for success or failure during business exit.

So, in essence, business owners are failing themselves, by setting standards too high and expecting too much from their exit strategies.

That’s why it’s a good idea to bring in a professional or a consultant, to ensure that you – as a business owner – keep both feet firmly on the ground during the exit planning process, and also during the plan’s implementation stages.

So, to maintain objectivity during your exit planning, speak to us – the exit planning professionals – at EASF Ltd. Give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk.

Exiting your business can be a ‘taxing’ issue

Whenever I’m approached by a business owner wishing to exit their company, they all want the same thing – to achieve the most financially advantageous exit.

With tax having such a huge impact on the sale of a business, it is, first of all, important that the business owner understands the tax implications of selling their company and how much money they can expect to lose out to the taxman.

Obviously the aim is to minimise this amount, whilst maximising the amount that goes to the business owner – the one who has actually earned this money! Whilst remaining on the right side of the law, of course.

If you are planning to sell your company, you could be liable to pay capital gains tax on the profit that you make from the sale of your business; the rate that you are subject to will depend on how long you have owned the business for.

Currently, capital gains tax allowance stands at £10,100 for 2009-10, so any profit under this threshold is yours to keep. Anything above this threshold is liable for the taxman to take his share.

If your company is classed as a business asset (the operations of your particular company will determine this) then you could also be able to claim business asset taper relief – which will reduce your capital gains tax bill by anything up to 75%.

If, like 40% of all other entrepreneurs, you invest this profit in another enterprise and become a ‘serial entrepreneur’ you can avoid your capital gains tax bill entirely. The only downside to this is, the profit still isn’t yours to spend – it’s now tied up in another business just as it was in your original company.

It’s often a wise idea to employ the services of a tax advisor and business exit specialist to help you determine the most tax-efficient, economically advantageous option available to you in your particular situation. The cost of paying for such advice and guidance is almost always far-outweighed by the gains made from implementing whatever strategy they advise.

Take Mr Smith, from a successful manufacturing firm. He released the value in his business by selling the company to his three sons. During this process, his tax advisor and business exit specialist helped him to decide on the best people to sell the business to, structure and organise the firm ready for its takeover, arrange the valuation of the business, and undertake the entire sales process – ensuring all legal requirements were met.

Without this professional assistance, Mr Smith is certain that he would not have experienced such a favourable outcome when exiting his company.

Mr Smith was yet another of our many satisfied clients.

So if you’re planning on parting with your company anytime soon, give us a call on 01709 810081 to enable us to help you through the entire process and maximise the value of your business.

Will the economy recover? Of course it will. And when it does, you could be in a position to take advantage of it

I’m often asked ‘when is the best time to exit a business’?

The truth is . . . it depends.

It depends on your particular personal goals, the nature of your company, the industry in which it operates, and a number of other dynamics.

But what I do tell them is: Don’t leave it too late to plan!

People all-too-often leave it too late to build a successful exit strategy. Or at least one that totally maximises their potential return from their business.

See, an exit strategy should be built well in advance of the point that you feel you need to leave your business, largely because, if you don’t have a carefully constructed exit strategy, you probably won’t ever get to a point where you can part with your business for maximum return.

You need your exit strategy to guide you, clearly, towards a particular point where you can make a calculated exit from your company.

Planning an exit strategy in advance will also allow you to maintain objectivity and a clear mind, whereas planning it at a later stage will undoubtedly be rushed and may potentially involve clouded judgement.

Planning your exit strategy in advance gives you a clear vantage point for the future.

And right now, the future can only get better for business and the economy.

That means many business owners will be looking to exit their companies within the next few years when things pick back up to the extent that they think they can earn a tidy personal sum for floating, selling, franchising, or implementing succession on their business.

But those who fail to plan their exit strategies in advance will experience a significantly less rewarding outcome than those that plan carefully, far in advance.

In fact, the statistics are rather worrying.

A study underwritten by MassMutual found that 67% of men and women investors/business owners had no plan of exit in writing. That’s over two thirds of the entire population of business owners and investors.

These people will be getting significantly less value from their business when they come to the point of exit, than the other 33% of business owners and investors.

Don’t follow the majority.

Our company, Exit and Succession Facilitation Limited (EASF) specialise in helping owners and investors of small- to medium-sized businesses exit their companies successfully and rewardingly.

We can not only help you to discover when you should exit your business, we will also help you to plan how you are going to part with your business. Different options suit different businesses, so it is important that every alternative is considered and explored before arriving at a final business exit strategy.

Over the past three years, we have helped many business owners to carefully plan their exit routes from their respective companies, allowing them to maximise their personal gains and be rewarded for their many years of hard work developing their businesses.

Get in touch with me, Bob Brown, at EASF today on 01709 810081 to maximise the value from your business. Don’t leave it too late!