Posted by Bharti Moore, Senior Associate
Business succession: do you have an exit strategy?
Many entrepreneurs devote a vast amount of time and resource to developing their business. It’s difficult to find the time to think about an exit strategy when you are busy dealing with the day-to-day management of your business.
And yet, preparing for an exit is good practice and can help you to achieve your future business goals. Exit is something which you should consider at an early stage. And yet, preparing for an exit is good practice and can help you to achieve your future business goals. Exit is something which you should consider at an early stage.
Like many things in life, preparation is key. It is never too early to start thinking and planning ahead. Dealing with any issues which may arise during the exit process can be very stressful, and the advice we always give is increase your chances for a smooth process and plan ahead.
What are your options?
Consider an exit strategy to suit your personal needs. Your tax and legal advisers can work with you to make sure your exit is structured to meet your personal tax position. It is key that you get them involved from the outset.
There are various ways you can exit from your business. Some popular exits include:
1. selling your business – either by way of a share sale or asset sale
2. passing it onto your family members
3. selling your business to your management team by way of a management buy-out
4. going public – listing your business on a recognised stock exchange
5. winding up and shutting down your business.
1. Establish a suitable exit strategy
2. Start thinking like a buyer to maximise the value of your business. You should identify and address key risk areas. The better understanding you have of your business, the better prepared you will be when dealing with your exit which will help your negotiating position and enable a smoother exit process.
3. Consider when you should exit. Assess the market conditions: what is your business really worth? The value you have in your mind may not reflect market conditions.
4. Due diligence is a vital part of any exit strategy and cannot be avoided. You should make sure that all your records, information and contracts are up to date. You should carry out a health check and obtain any missing information and close any gaps as early as possible.
5. Time to visit your bank managers and accountants; ensuring your financial records and information are up-to-date is imperative. You should review the business’s past, current and future financial positions, review your balance sheet and forecast what your sales will be for the next few years.
6. Obtain legal advice to help guide you through the process. Whichever exit option you consider, there will be many aspects you will need to think about including corporate governance issues, audit of commercial agreements, employees, any property issues and making sure that your intellectual property is properly protected.
The key to any successful exit is planning. Getting the right professional advisers on board from the outset will smooth the path and make the exit as stress free as possible when the time comes.
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