Planning your business exit might not appear as exciting as building it, but it is just as important. A clear and well-prepared exit strategy ensures you maximise the value of what you’ve built. At Tees we can help you explore your options.
Your goals
Before you even think about “how” you want to exit, you will need to be clear on your objectives. We always advise our clients to ‘start with the end in mind’. Why are you building this business in the first place? What’s the bigger picture? What are you seeking to achieve and what does a good outcome look like for you?
- To create generational wealth?
- To cash out and retire comfortably?
- To fund your next venture?
- To pass the business on to your children or key employees?
Whatever your “why” the next question should be “is it realistic/achievable?”
This is where an expert wealth adviser can be invaluable. They can help forecast how much you will need to reach your goals, and how long it might realistically take to get there. Their financial modelling can help map out a timeline for when selling or stepping back becomes viable, not just based on what you want, but based on the figures. This level of insight can be a game-changer for your strategy and exit planning, and we’d recommend you engage with the Financial Planner at an early stage so you can get a better understanding of what is/is not possible.
Your exit options
It is not always just about selling to the highest bidder! There are a wide array of options depending on your goals, business structure and importantly tax advice.
Here are the most common exit routes for private limited companies:
- Share acquisition or disposal
This is one of the most straightforward exit methods. A buyer purchases your company’s shares directly taking over the entire legal entity including assets, liabilities, employees, contracts, IP and tax obligations. The business often continues under its existing structure. - Asset acquisition or disposal
Here, the buyer only acquires specific business assets like stock, equipment, IP or customer contracts and leaves the company shell and its liabilities behind. This is often more attractive to buyers who want to avoid historical debts or legal risks. - Merger
A merger involves combining your company with another to create a new entity or allow one to absorb the other. This can be beneficial for scaling up, increasing market share or entering new markets. - Private equity investment/buyout
A private equity firm acquires a stake (often a majority) or the entire business, with the goal of growing and scaling it, improving performance and eventually reselling it to another investor. - Management Buyout (MBO)/Buy In (MBI)
An MBO or an MBI allows your existing leadership team or a new (external) leadership team to purchase the business. These options can offer continuity and stability, particularly in an MBO, where the team already knows the business and is committed to its success. - Family succession
Passing the business on to family members ensures your legacy continues. It requires early planning to address ownership structures, tax planning and leadership of the next generation. - Employee Ownership Trust (EOT)
An EOT enables employees to collectively own the business. It is increasingly popular in the UK due to tax incentives and the opportunity to preserve company culture while exiting gradually.
Your due diligence
By the time you are contemplating a sale, it may be too late to start getting your business in order and fixing issues that you have worked with for so many years. Buyers and their advisers will scrutinise your business through a process called due diligence. If red flags arise such as missing contracts, IP issues or tax risks, it can reduce the sale price or derail the deal entirely.
Conducting a seller-side due diligence exercise on your own business can be an invaluable task. It involves going deep into the operations, financial and legals of your business to identify and fix issues so your business is in tip top condition at the point of sale.
Some key areas to address include:
- Ensuring all contracts are current, signed and dated, and easily accessible in a digital filing system
- Employment contracts, policies, procedures, workplace issues are all in hand and up to date
- Confirming IP ownership is clear and protected
- Resolving outstanding litigation or tax liabilities
- Ensuring your corporate governance is up to standard
We recommend starting 2 – 3 years before exit. That window gives you time to strengthen your business, resolve potential issues and enter negotiations in the strongest position.
Your business value
Get a valuation! There are excellent business advisers and accountants that can assist in valuing your business. You will need a professional valuation that considers EBITDA, growth trajectory, customer concentration, market value and industry trends. Understanding your current value will help you set realistic goals and benchmarks for your exit plan.
Your dream team
No business deal is fruitful without a trusted team of advisers around you. Planning and selling a business can be high-pressured and emotionally demanding, so it’s important to have advisers around you that can provide commercial and pragmatic advice.
At a minimum, your advisory team should include:
- A commercial lawyer: to review and update key contracts, employment contracts and policies.
- A corporate lawyer: to manage legal structure, contracts and negotiations.
- A corporate finance adviser: to guide valuation, structuring and deal strategy.
- A tax adviser: to help you minimise tax liabilities and maximise post sale value.
Ideally, you will work with advisers who have experience in your industry and a solid track record in business exits, as this insight can make a big difference.
Tees: Giving you the full picture
Planning your exit is not something to leave until “someday”. The earlier you start, the more options and leverage you will have. Whether you want to exit in two or ten years, laying the groundwork today ensures that when the time comes, you are ready with a business that is prepared and attractive to the right buyer.
If you would like to discuss preparing your business exit, please do get in touch.
Tees’ expert financial and wealth advisory team work hand in hand with our legal advisers to ensure a joined-up approach to achieving your desired outcomes.
