The importance of having an exit strategy

Many business owners will agree that their main aim in developing a business is to sell it off for a sizeable sum, allowing them to retire early or start afresh with a new business project. But whilst the same business owners see the importance of planning the day to day running of the business, the idea of exiting the business is little more than a dream.

This alarming fact has been borne out by a recent survey of SME’s (small to medium-sized enterprises), which showed that over 75% have no exit strategy*. The figures become even more concerning when one considers that over 50% of the businesses surveyed wanted to sell their businesses in the next ten years, yet only 16% of these businesses had made any sort of plans as to how this was going to happen.

Selling a business is the main reason why most business owners put in years of effort and investment, but time after time business owners fail to plan for exit or retirement, meaning many have to work far beyond the statutory age of retirement or have to wind up a lucrative company because they have failed to make their business attractive to buyers.

The answer is for business owners to start planning an exit strategy several years before they are looking to retire or move on. With our solid business and financial knowledge, we can provide financial advice on both a personal and business level to owners

We will produce a strategy, which looks at the owner’s goals for developing the business through retirement and how those objectives can be achieved. Once an action plan has been drawn up, we can then monitor the progress of the strategy to ensure that the exit plan stays on track.

Two of the most important factors in the successful sale of a business are maximising its sale value and ensuring that the business is attractive to buyers.

Adding Value To The Business

Value can be added to a business in a number of ways, the most obvious being to improve profits to increase the sale price and allow for investment in a business or retirement fund.

Obtaining investment partners or floating company shares can also add value by bringing in expertise, providing additional financial stability and a recognised, external valuation of business worth.

Owners can also take simple steps such as tying in staff with incentives to maintain company expertise and sale value. Identifying non-recurring expenditure will also highlight underlying earnings. Perhaps most importantly, we can also advise on the optimum time to sell the business, taking into account a projected peak in business performance and market demand.

Attracting Buyers

A well-systematised business is one of the most important factors to a buyer. A company which employs a management structure, which can run the business independently is much more attractive than a business whose key driving force and expertise lies in the hands of the owner-manager who wants to retire.

Another way to systematise is to create franchises, which can continue independently of the owner, whilst allowing for rapid expansion of turnover, geographical cover and brand awareness.

Owners should also ensure that all contracts and titles to assets are legally robust, as any disputes, which arise can be a major disincentive to buyers.

Well-structured business plans and audited financial statements will also boost buyer confidence, encouraging a quicker sale and higher sale value.

“As an IFA my goal is to help businesses to obtain the maximum return for all the time and effort that they have invested”, says Bob Brown. “The ability to sell a successful business is important not only to the individual business owner but also to Britain’s overall business economy, which is why we are encouraging businesses to take action and prepare for the future”.

To help businesses start to plan their exit strategy E Financial Planning has produced a free Exit Strategy Questionnaire, which can be obtained by calling 0870 3000168 or emailing.

*Telephone survey of 25 businesses in Sheffield undertaken by an independent researcher on behalf of E Financial Planning.