Ten tips to optimise your business exit
Planning your business exit is about much more than simply finding a buyer and agreeing a price. We look at the steps you can take to make the transition as smooth as possible.
We recently sat down with Karina Challons, Managing Director, UK Wealth Planning and Russell Prior, Head of Family Governance, Family Enterprise Succession and Philanthropy, to discuss their top ten tips and considerations for clients thinking of exiting their business.
The top ten tips to a successful exit:
1. Set “crystal clear” objectives – “Think deeply about what you are trying to achieve from the sale of your business and who for, what your plans are for yourself beyond the sale, and then prepare with those in mind,” says Prior.
2. Plan early – while it’s never too late to start, some wealth planning has a defined cycle, for example, eligibility for certain forms of tax relief or establishing trusts. “Starting to plan early means you can consider different planning options, whereas if you leave it to just a few months before, it might be too late for some of those options,” says Challons.
3. The right kind of exit – “Decide whether you want a clean exit or whether some kind of deferred exit or an earn out might work better for you,” says Prior. “Think carefully about how you’ll feel though about not being in charge if you do stay on in the business post-sale. And also be honest – are you just staying on to put off thinking about the emotional side of the sale? And will the deferred compensation actually pay out?”
4. Think about your next steps – "What are you going to do in phase two of your life?" says Challons. "Some people want to develop another business, some people want to prepare the next generation. Others want to use their wealth for philanthropic purposes, or invest it in another business.”
5. Consider how to manage your wealth – both Challons and Prior agree that the sale of a business you’ve built up can be similar to a bereavement. “Giving yourself time to ‘grieve’ and adjust is important,” says Prior. “Take your time when it comes to investing the proceeds of the sale and don’t make rash decisions.”
“You’re essentially trading a lifestyle based on running a business for one where you have cash available and perhaps no immediate purpose, and that can change the dynamics of how wealth works and your attitude towards it.”
6. Think about family dynamics – such a significant change can impact family relationships. Whether that’s considering how other family members who have played a role in the business will continue, how the family unit will adapt to spending more time together, or even the impact on children of an impressionable age of having a non-working parent with lots of available money.
“Sometimes people have given their children too large a shareholding and they suddenly realise that when they sell, they’re going to have all this money and they’re too young,” says Challons. “Other families have some children involved in the business and others not, but they want to treat them equally – how do you keep it fair between those who’ve done the work and those who haven’t, and how does that affect relationships?”
7. Protecting the family – how can you protect children who may, for example, suddenly have access to significant wealth. “If your son or daughter gets GPD20 million at 19 years of age, how’s that going to go? Discussing what happens then and whether that makes them a target for unscrupulous people, and how you can prepare and protect them is essential,” says Challons.
8. The wider business – other aspects of the sale of your business, such as concern for long-serving employees or the business name should be considered. “If your name is on the business, how will you feel once you’re no longer a part of it?” says Prior.
9. International dimensions – “The type of planning you want to put in place might be fine for a UK resident domiciled family, but if you have family that are in the US, in Japan, in France, Italy or Spain, it changes. We’ve had situations where people have had a plan in place and then they announce, for example, that they’re moving to America – and that sort of arrangement wouldn’t work there,” says Challons.
10. Don’t underestimate the emotional aspects – “There’s obviously a lot of rational thinking around a business sale,” says Prior, “but it can also be a deeply emotional process. Often the role you’ve played in the business will have defined your life for many years – not just financially, but socially.”
Making sure it’s the right time to sell – for you – is vital. “We’ve had cases where people haven’t thought it through, and they have regrets – sometimes to the extent that they buy the business back,” adds Challons.
“Planning your business exit should be business as usual,” says Prior. And, while every business, individual and family are different, says Challons, planning ahead can make your exit “a much, much easier journey.”
Think deeply about what you are trying to achieve from the sale of your business and who for, what your plans are for yourself beyond the sale, and then prepare with those in mind. - Russell Prior, Head of Family Governance, Family Enterprise Succession and Philanthropy