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.

Failing to find the time to plan for exit can have a direct impact on the value of a business when you do decide to move on. 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

What are your personal objectives and how do your business objectives fit with these? Do you ultimately want to grow the business and sell to the highest bidder to enjoy retirement, or do you want to retain ownership within the family for future generations?

Your objectives may have shifted over time as your business evolves and grows, and the uncertainty following Covid-19 may have also impacted your plans and decision making. For instance, you may now want to accelerate succession plans and potentially extract an element of value from your business to ‘de-risk’ and protect your future family wealth.

Now is as good a time as any to re-appraise your personal objectives and the options available to you in an ever changing economic landscape.

2. Consider how to internally transition the business

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

Identify any gaps and develop the next team of leaders that will drive the business forward. 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 owners 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

Equity succession can be immediate (for instance through a sale to a competitor), phased (by exiting in stages, for instance through buy outs), or more gradual to meet your ultimate aims. There are many different options to satisfy your exit objectives. Understanding your key priorities will help develop the best option for you, these may include; maximising business value, work-life balance, family legacy, or covering matters such as generational issues, 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, and advise you through a transaction. 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 appraisal

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 business impact of strategic decisions including an appraisal of opportunities and threats. With a high level of uncertainty brought on by Covid-19, this may seem overly complex or daunting, but an experienced professional will be able to help produce integrated forecasts to assist with scenario planning and decision making.

Understanding the level of funding that can be raised against the business is important when considering your personal objectives and value requirements. A strong management team will also provide funders/equity investors with additional comfort in 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 and emotion often tied up in their business, it’s essential that owners take into account how succession 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 gradually stepping away from the business and retaining some future involvement?

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 next stage in life.

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