Exiting your business & planning for successon
The impact of the recession and financial crisis has devastated many people’s financial aspirations. The value of almost all property and businesses has fallen, and this against a slump in share prices and falling interest rates. With [male] baby boomers now reaching retirement age it is expected that there will be an ongoing increase in those looking to exit their business and either retire or look for alternative pursuits. Is now the time to look at your exit strategy?
Your personal exit strategy
Every business owner should have a personal exit strategy. We sometimes refer to this as ‘starting with the end in mind’.
Key issues to consider could include:
• Passing on your business to your children or other family members, or a family trust
• Selling your share in the business to your co-owners or partners
• Selling your business to some or all of the workforce
• Selling the business to a third party
• Public flotation or sale to a public company
• Winding up
• Minimising your tax liability
• What you will do when you no longer own the business
• Whether the new owners will need or desire your involvement after the sale
Maximising the value of your business
Whoever buys your business will want to be clear about the underlying profitability trends – are the profits on the increase or decrease? What has been the effect of the 2008/09 ‘recession’ on the value of your business? Up-to-date management accounts and forecasts for the next 12 months will be close to the top of the list of the information which you should be prepared to make available to prospective purchasers. The value attributable to many businesses is driven by the historical profits and therefore a rising trend in profitability should result in an increase in the business’ value.
For more information about how we can help you plan for the future, call us.
Profitability planning is always important but particularly in the years leading up to the sale. So, what is the range of values for your business? Although you may think you can make an educated guess, a professional valuation gives you more solid ground. Assess your position today and then work with us to see how you can make your business more valuable. These are the sorts of questions a potential purchaser might ask himself:
• Are sales flat, growing only at the rate of inflation, or exceeding it?
• Is yours a service business with limited fixed assets, or are stock and equipment a large part of your company’s value?
• To what extent does your business depend on the health of other industries or of the economy?
• What is the outlook for your line of business as a whole?
• Will your company’s products and processes be outmoded in the near future?
• Does your company use up-to-date technology and have a well-developed research and development programme?
• How competitive is the market for your company’s goods or services?
• Does your company have to contend with extensive regulation?
• Are your company’s products and services diversified?
• What are your competitors doing that you should be doing, or could do better?
• How strong is the company’s staff that would remain after your sale?
When should you sell?
You need to weigh up the factors which might influence the right time for you to sell your business.
There are many personal factors that are likely to influence your decision with regard to when to sell your business. You may need to think about:
• What do you wish to do with your life?
• When do you want to retire?
• Has your health begun to deteriorate?
• Do you still relish the challenges of running your business?
• Does your business have an heir apparent?
• What do you wish to do with your capital?
• Will your income stream and wealth be adequate, post sale?
• Will the business want your services after you retire?