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.

Life insurance can be likened to business exit planning

It’s quite a strange analogy to make, so let me explain.

When we’re born, we’re thrown into this world of endless possibilities, full of opportunity and wonder.

The last thing that’s on our minds when we’re young is what will happen when we leave this world. What happens to the family and friends we leave behind? What will become of those that depend on us to survive?

All we are concerned about, at least whilst we’re young, is tackling the issues and events that present themselves in the short-term and, for the more conscientious young people amongst us, how we are going to attain the careers and lifestyles that we aspire to.

Now, liken this to setting up a new company.

You’ve just come up with a revolutionary accounting system that will completely eliminate the need for business owners or their accountants to complete accounts and returns manually. You’re not interested in where the company will be in 5-10 year’s time, you just want to get this new product patented and out to market as soon as possible before competitors develop their own systems.

But, like death, parting with your business is inevitable. It will happen eventually. And if you fail to prepare for this inevitability, you will suffer the consequences.

One dissimilarity in this analogy, however, is the persons that are affected by your actions.

If you fail to secure proper life insurance cover, and you pass away, your friends, family, and those that depend on you will suffer.

If you fail to plan your exit from your business properly, however, it’s you that will suffer. You will, most probably, receive a much lower price for your business and basically remove a huge chunk of value that you have spent all those years building up in the company.

So, the lesson is, try not to become too tied-up in the day-to-day operations of your company and don’t neglect long-term strategic planning. It might not appear to be too important during the early stages, but investing time in this activity during the start-up phase will pay dividends (literally!) when the time comes to sell your company.

And if you don’t have the time or patience to handle exit planning yourself? Outsource it to the professionals.

Arrange a no obligation chat with me, Bob Brown of Exit Success, to see what we can do for you and your business to ensure that you get the best deal possible when it’s time to exit.

Give me a call on 01709 810081 or email bb@easf.co.uk.

What should I include in my exit plan?

This is a question I get asked quite frequently in my line of work. What should I include in my exit plan?

Although all businesses are different - they’re structured in different ways, operate in different industries, have different internal rules and procedures – the process of exiting a business, and the principles behind each stage of the process, remain largely the same.

This process is as follows:

1. Reach agreements and seek authorisation from other directors/partners to sell the company. This agreement should include the signatures of all parties involved, and should be checked over by a solicitor to ensure it stand up to legal scrutiny if any of the directors/partners decides they no longer want to sell the business and wish to oppose the decision.

2. Designate a leader and arrange a team for the selling process. If your company is only small, the team may only consist of you (the director/owner) and another director or partner. If the organisation is larger than this, it should include business executives, accountants, and legal personnel, all of whom should bring a different area of expertise and experience to the team.

3. Employ help in the form of consultants and other professionals. If you want your business exit to be a successful one, it would be a wise choice to employ the help of an exit strategy specialist – preferably one who is experienced in the type of exit you are considering.

4. Conduct a thorough review of the business and identify any problem areas. Reduce costs and boost revenue wherever possible to improve the financial attractiveness of the business.

5. Develop a list of assets and perform a physical inventory. From this you can create tax calculations and establish the value of your business.

6. Value the business. This is probably the most difficult step in the process: determining the value of your business. Because all businesses operate differently and are structured in several ways, there is no universal way to determine the value of your company. Employ the assistance of the aforementioned consultants and professionals at this point to ensure you value it properly.

7. Prepare a detailed plan of how you expect to exit the company. Include a timeline of events.

8. Announce the decision. Let clients, employees, and all other stakeholders in the business know about your decision to sell or otherwise exit from the company.

9. Implement the plan.

10. Conclude or transfer contractual obligations. Agreements with suppliers and other stakeholders need to be terminated or otherwise transferred in some manner.

11. Close operations. Be careful not to do this too early as it can affect cash flow and net value dramatically.

12. Settle debt obligations and transfer/sell business assets.

13. Prepare final financial statements and tax returns. This is important for placing closure on your legal tax obligations before you leave the company.

14. Receive tax clearance notice. Once this is received, it should be stored, along with other business records (for a minimum of seven years). You should now close your bank account.

So where does EASF Ltd. come in to this process?

We are the consultants that step three mentions. We help you value your business and guide you through the entire exit process to ensure that no important steps are missed and that you maximise the value of your business upon the point of exit.

To speak to the professionals at EASF Ltd., give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk.

How to Maximise the Sale Price of your Business

Every business owner who chooses to sell in order to exit their company wants to maximise the sale price of their business.

And rightly so.

Blood, sweat, and tears have gone into building your company into what it is today, and it is natural to pursue the best possible reward for your hard work.

But what most business owners fail to understand is that it also takes hard work to sell your business if you want the best possible financial outcome. Fail to put the work in when selling your business and you negate the hard work you have put in over previous years.

To help you get the best price for your business, here are a few things you should consider.

Who you are selling to

Selling a business is much like selling a product or service on the marketplace. You need to understand who your target market is.

Who would be interested in buying your business? Why?

Depending on your industry and the type of business you have, potential buyers could include customers, suppliers, competitors, external investors or entrepreneurs, and even internal buyers i.e. employees and/or managers.

Once you understand who you are selling your business to, then you can proceed to plan how you will make the business attractive to this target audience, and how you propose to approach them with the opportunity.

Make the opportunity attractive

If you were selling your car, would you advertise it in an unclean, untidy state?

If you were selling your house, would you allow viewings without first vacuuming and giving the bathroom tiles a good scrub?

Of course you wouldn’t.

The same principles apply when selling your business.

Tidy up any loose-ends, remove unnecessary costs, and boost sales as far as possible to make the opportunity appear attractive to potential buyers.

Inspire confidence

A hugely influential aspect, when it comes to selling your business successfully, is the level of risk that buyers perceive your business to pose.

If you can minimise the risk presented to buyers, you can maximise your chances of making the sale.

Offer to remain an employee of the business for a set period of time to help show the new owner ‘the ropes’.

You can also incorporate an ‘earn-out’ clause in the sale agreement which essentially places a proportion of the sale price under conditions of business performance. Meaning if, after the sale of your business, the buyer experiences the achievement of previously agreed financial objectives, you will receive the proportion of the sale price that was attached to the earn-out clause.

If, on the other hand, objectives are not achieved, you will not receive this proportion of the sale price.

In essence then, it provides a financial safety net for the buyer should the business performance not meet expectations.

If you incorporate all of the above measures, and negotiate well with potential buyers, you can maximise the sale price of your business.

If you would like further help and assistance with regards to preparing your business for sale, get in touch with me, Bob Brown, on 01709 810081.

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!