Over the last twelve months, we have seen a significant increase in the number of business owners wanting to talk about exit planning.
Some are actively considering a sale within the next two to five years. Others have no immediate plans to exit but recognise that retirement, succession, ill-health, changing market conditions, or simply a desire to do something different may mean they need options in the future.
What is interesting is that the conversations are rarely just about tax.
Instead, they tend to focus on broader questions:
The most successful exits are rarely created during a transaction process. They are usually the result of years of preparation.
Most business owners spend years growing their business but surprisingly little time preparing to leave it. The reality is that purchasers pay for businesses that can succeed without the owner. A well-planned exit is therefore about much more than tax planning (yes, really!) or finding a buyer. It is about building a business that somebody else wants to own.
With that in mind, here are ten areas every business owner should be thinking about long before a sale process begins.
Many owners say they want to sell in two or three years, but when asked what success looks like, the answer is often less clear.
Do you want:
The answers will influence almost every decision that follows.
A successful exit starts with clearly defining your personal and financial objectives before considering transaction structures or tax planning.
This is often the most important question.
If key decisions always come back to the owner, buyers will see risk.
One of the recurring themes in our recent client discussions has been the effort involved in making a business less dependent on its founder by building a management team capable of running the business independently.
Ask yourself:
The less dependent the business is on you personally, the more attractive it becomes.
Many owners focus on turnover.
Buyers rarely do.
Instead, they focus on:
A valuation exercise can provide valuable insight long before a transaction is contemplated because it helps identify what creates value and what destroys it.
Businesses evolve.
Structures that made sense ten years ago may not make sense today.
We regularly see:
All of which may affect a future sale.
Identifying structural issues early gives time to consider alternatives and avoids unpleasant surprises during due diligence.
Owners often assume a sale is a sale. It isn’t.
A buyer may prefer:
The tax and commercial consequences can be very different.
Understanding likely purchaser preferences early can help shape planning decisions and manage expectations.
Many businesses rely heavily on a small number of senior employees or directors.
A buyer will want confidence that those people remain after completion.
Questions worth considering include:
The right incentive arrangements can protect value and improve saleability.
Selling your business is a major event.
What happens afterwards?
Many owners focus entirely on the deal itself and spend too little time considering:
These issues are often more important than the transaction itself.
For many business owners, pensions represent a significant proportion of their overall wealth.
Pensions, SSAS arrangements and other investment structures should not be considered in isolation. They should form part of a coordinated plan alongside the proposed disposal and wider family objectives.
A trade sale is not the only option of course.
Depending on the circumstances, alternatives may include:
Different routes produce different outcomes in terms of tax, cash flow, control and risk.
Perhaps the biggest lesson from our recent discussions with business owners is that good exits are rarely created in six months.
The most successful exits are often the result of years of preparation.
Time allows owners to:
The earlier the planning starts, the more options are available.
Business owners frequently ask:
“When should I start planning my exit?”
The honest answer is that if you think you might sell within the next five years, you should probably start now.
The best time to address tax, structure, management succession and personal wealth planning is when there is no immediate pressure to complete a transaction. By the time a buyer appears, many of the most valuable planning opportunities may already have passed.
Exit planning is rarely a single piece of work. It is usually a combination of commercial, tax, succession and personal planning considerations that need to be aligned long before a transaction takes place.
At ETC Tax, we regularly help business owners with:
Every business and every business owner is different. The best exit strategy is rarely about a particular tax relief or transaction structure. Instead, it is about understanding your objectives, identifying opportunities and risks early, and putting a plan in place that allows you to leave the business on your own terms.
Whether you are considering a trade sale, management buyout, Employee Ownership Trust, family succession or simply want to understand what your business may be worth, an early conversation can often identify planning opportunities that may not be available closer to a transaction.
Contact the ETC Tax team on 0161 711 1320 or enquiries@etctax.co.uk or click here .
No exit planning article would be complete without mentioning the perennial rumour mill surrounding the possible changes to Capital Gains Tax on 28th October.
Whenever speculation emerges about potential changes to Capital Gains Tax, Business Asset Disposal Relief or other reliefs, business owners understandably start to wonder whether they should accelerate their plans.
Whilst future tax changes are always possible, it is important not to lose sight of the bigger picture.
Tax matters. We would be the last people to suggest otherwise.
However, the most successful exits are usually built on good business planning first and tax planning second. Don’t let concerns about what might happen in the next Budget distract you from the things that will genuinely drive value over the next five years.
Contact the team at ETC Tax to discuss you exit plans.
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