Effective exit planning for your business

 

Current economic climate aside, long term business planning is essential; particularly exit planning if you decide to stop running your business. Whatever your future looks like, if you plan ahead you can ensure a smooth transition.

There are several exit strategies you might consider including liquidation, handing over to a successor or selling within your business, to competitors or on the open market.

 

Liquidation

This is the simplest option for winding up your business, and often the quickest if there are no assets to sell. It’s important to bear in mind that liquidation has the lowest return on investment with money only possible from the sale of company assets such as land, equipment or goods. Liquidation can be done over time if you want to ease yourself slowly out of the business, and this can be done by withdrawing assets over time before finally closing the business. This option is not generally that appropriate for businesses that employ people, and it can be difficult to keep the team motivated when they know you are going to call a halt to the business.

 

Selling your business

There are a number of options for a business sale, however the most common that we see are either a trade sale to a competitor, or a Management Buy Out (MBO) by existing employees at the business.

A trade sale is likely to realise the greatest return and the quickest. This is because your competitor will be able to take advantage of synergies between owning two businesses in the same industry to save costs. Being from the same industry, they will also have a great understanding of your business model and will be quick to realise its value.

A Management Buy Out is an increasingly popular option. It allows continuity and stability at the business as the existing management team take the business on with the departure of the present owner. Typically the sale will be for an initial lump sum of cash, and then subsequent payments spread out over a number of years. This makes the financial requirement much more affordable for the management team, who do not typically have access to a lot of capital. Obviously, there is a downside for the seller as they have to wait a number of years to fully receive the sale price.

 

Keeping it in the family

There are many successful family businesses across the South West, and it can be an excellent way to keep what you have built in the family. However, introducing additional family members to a business can be a new source of tension and cause friction where previously none existed. It is certainly something to spend time considering before take action. If you do go ahead, then the next generation can effectively be, or be part of, your Management Buy Out team, although you might consider giving them a more favourable price!

 

How much is my business worth?

This is the million-dollar question, and it is not easy to answer. The first thing we always ask clients is can the business run without them. If the answer is that the business would fall apart were they to take a week off, then they are not in a good position! To many businesses, the present owner holds a lot of the value, and without them the business is worth substantially less. Business owners need to plan for this and put capable managers in place to run the business in their absence. Sure this might decrease profitability, but you will have a much more saleable business.

As a rule, most businesses are valued on a multiple of profits. Exceptional items are added back and then an ‘adjusted profit’ figure is used in conjunction with a multiple to give a business value. Very crudely, if the adjusted profit is £100,000 and the multiple is 3, then your business is worth £300,000. Multiples vary by industry, business size and a host of other factors.

 

If you would like further advice on what your business might be worth, our team can provide a comprehensive valuation, talking through your options.

There are so many possibilities that you could consider when planning for an exit from your business and we have only scratched the surface in this article. We can help you understand what those possibilities are. Once you have decided a path, we can help you to take practical steps to make those possibilities happen. If you need any advice please contact us on 01752 665134 or email us at info@haroldduckworth.co.uk.

Start typing and press Enter to search