Many successful business owners are too busy to bother with an “exit” strategy, an expert has warned.
Richard Wherton, Midlands Partner at national audit, tax and advisory firm, Crowe Clark Whitehill, says they need to change their thinking.
“After years of hard work building up a successful company, it is surely logical to spend time planning on how to maximise its value when the time comes to pass it on,” he cautioned, adding: “it would be a shame not to maximise the proceeds because the exit ends up not being as well planned and managed as the business itself.”
And Mr Wherton highlighted five key stages – identifying the owners’ objectives; identifying the obstacles to a successful exit; what the options are; preparing the business for sale; and implementing the exit.
“Commercial confidentiality is all important to some owners, who may be willing to accept a lower value to avoid competitors using the sales process as an exercise to gather information, whereas other owners, and in particular those who are retiring and want to pass the business to a family member or reward a loyal management team, may look to do so through a management buy-out at a favourable price,” he said.
“Others still may want to ‘cash in’ but stay with the business for a period as employees.
“Whatever the owners’ objectives, the reasons for selling should be thoroughly explored.
“Is it the right time? What are the immediate future prospects for the business? Will its value increase or decrease over the next few years? Do the exiting owners need to raise capital to live comfortably in retirement or are they already financially secure? There are many issues to consider.”
Mr Wherton said: “There are a number of options – a trade sale; a management buy-out; a purchase of own shares (often called a share buyback); passing the business to the next family generation; introducing a private equity backer; or going public on AIM or another public market – but all options benefit from the business being investor ready and we utilise a process that examines the key areas resulting in actions that the owners should take in preparing the business for sale.
“All have their advantages and disadvantages so it is very important to examine each very carefully,” he stressed.
“The strategy to follow if, for example, a buy-out is the preferred exit route will be very different from that for a trade sale or flotation. But, irrespective of which route is best suited, owners should plan their exit several years before they want to sell or retire.”