As a business owner, it’s inevitable that you’ll reach a point where you’ll want or need to exit your business, whether through a sale, buy-out, or planned succession. When this time comes, it’s crucial that the revenue from the transaction meets your financial requirements for your next venture, be it retirement, a sabbatical, or another business. To achieve this, it’s essential to prepare your business for a smooth and rewarding exit process.
According to research by UBS Wealth Management, a staggering 48% of owner-managers who plan to sell their business in the next five years have no formal exit strategy in place. This lack of planning can lead to a lower sale value, making it challenging to achieve your financial goals. It’s essential to have a plan in place to maximize your business’s potential sale value.
Why Early Planning is Crucial
A recent survey by Moore Stephens found that SMEs typically need around three years to prepare for a sale. The survey of 610,000 directors also revealed that 12% of small business owners are over 70 years old, and 21% are over 65 years old, indicating that many directors may be late in planning their exit. As a previous business owner, it’s easy to get caught up in everyday operations and neglect exit planning. However, developing an achievable exit strategy is a critical task that requires proper consideration.
Creating a Comprehensive Exit Plan
A good exit plan sets out steps to increase the value of your business, attract prospective purchasers, and secure the best possible price. To create a comprehensive plan, ask yourself the following key questions:
- What are your retirement goals, and how much do you need to achieve them?
- When would you like to exit from your business?
- What is your preferred exit route?
- What is your business worth today?
- Have you identified the best ways to increase your business value?
- Do you have a continuity plan to protect your business should you become seriously ill?
Key Factors to Increase Business Value
Identifying factors that will increase the value of your business is a critical element in exit planning. Creating a timeline that plots value improvement strategies allows you to position yourself to exit your business at a time that suits you. This helps you recognize how much your business needs to grow in value to meet your financial target within your timeframe.
Some key value improvements to consider include:
- Good and improving cash flow
- Potential scalability
- Dependency on certain customers, employees, or suppliers
- Recurring and sustainable revenue
- The size of market share
- Customer satisfaction
- The business’ dependency on the business owner
The strength of these factors will provide a focus on which areas to grow in your business, improving your chances of a successful sale and facilitating planning and preparation for that sale. If you’re considering exiting your business in the near future and would like to discuss your options, feel free to contact us.
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