How to enhance your business’ value through exit planning

While most business owners understand the importance of planning how they will exit their business, the time invested in it does not always get the attention it deserves due to the demands of daily operations.

This article was written by David Baggott, Senior Manager at Mazars

However, failing to find the time to plan for exit can have a direct impact on the value of a business. To ensure your business value is maintained – and even increased – take a step back from the day-to-day and dedicate time to planning.

Below are five key points to consider when planning for exit:

1. Take stock of personal objectives

It may be that the business started out as a lifestyle decision, but is that still the case 10 or 20 years down the line? Your objectives may have shifted into steering a business into future growth, or perhaps it’s now something you want to hand down to future generations.

These changing dynamics will dictate how you remove risk from the business. Depending on what outcome you are looking for, you might extract cash and step back from the daily operations prior to fully retiring from the business, allowing an element of ‘de-risking’ for the future wealth of your family. Any succession decisions should ultimately be structured to satisfy your personal objectives.

2. Consider how to internally transition the business

Identify key roles and map out ways to ensure the business can achieve the objectives. This will help create a smoother succession.

Develop the next team of leaders that will drive the business forward and identify any gaps. Whichever succession option you choose, having a strong next level of management will ultimately enhance your value and smooth the process. It’s imperative that those in senior positions begin to pass on their knowledge and transfer key relationships to their successors early, so that their skills do not leave the business when they do.

Involving potential successors in key decisions and plans will ensure they are engaged and aligned with the business’ vision. Developing appropriate remuneration packages to reflect significant extra responsibilities will help to retain key staff.

3. Explore all options available

Succession can be immediate (for instance through a sale to a competitor), phased (through buy outs) or gradual (over a longer period of time). Each of these options provide different ways to satisfy your goals, such as maximising business value, work-life balance, family legacy, and covering matters such as generational issues and commercial and tax considerations.

Navigating all these issues will more than likely entail working with external experts who can help kickstart and shape initial plans. When it comes to ensuring a tax efficient environment, rules can be complex and heavily affected by economic and political change. Working with trusted partners will ensure you assess the full range of options alongside consideration of appropriate tax reliefs during your succession.

4. Financial forecasts

Understanding your business’ profit trends and future growth opportunities, as well as underlying market dynamics, can help to shape succession plans. Developing robust forecasts will help you to assess the impact on the business including opportunities and threats.

Understanding the level of cash that can be extracted, or funding that can be raised against the business, is useful to when considering your personal objectives and value requirements. A strong management team will also provide funders with additional comfort on their investment into the business.

5. Take it personally

Finally, owners should not overlook how they want their post-business future to look like. With a lot of personal value often tied up in their business, it’s essential that owners take into account how succession plan decisions will affect them. What will you do next? Are you happy to be heading for full retirement with travel plans and hobbies to fill the time, or do you see yourself always retaining some small involvement in the business

Business succession is a process that business owners, generally, will only ever experience once. Our experts have worked with many businesses to ensure the process is smooth and owners achieve their goals for their future life.

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Patrik Kerler Partner - Head of Financial Advisory Ger./It. CH - Zurich

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