Securing an exit

Planning for the future

In this series of insights, we’re going to walk you through how to prepare to successfully leave your business.

Planning for the future

Running a family business or other privately-owned enterprise can be incredibly demanding. As a result, you might not have found time to plan your exit strategy or how your business could continue operating without you, without impacting its performance and management. But it is vital to plan and consider what you’d like to happen, whether that forms part of a planned or unexpected exit.

It's crucial to tackle succession planning early, as it often leads to a better outcome for both you and your potential successor(s).

Planned routes to exit

There are a number of ways to step away from your business. The route you choose to follow will depend on your exit objectives. Here are some questions that could help you decide:

Are you looking to step away entirely or stay with the business in a slightly different role?
Are there family members, employees or a management team you would like to pass ownership on to?
Would you like to work with an investor who can offer new ideas and a different insight?
Would you like the new leaders to share a certain vision and ethos?

Possible options include:

Sale/transfer to family
Sale to a trade buyer/ competitor
Sale to your employees (through an employee ownership trust)
Sale to management (potentially with a supporting investor)
Partial sale to an investor who can support increased growth
Initial public offering

Unexpected routes to exit

It’s just as important to have a plan in case you’re suddenly unable to run the business. You should think about the following questions:

Do you have family members or friends that you’d like to take over the business?
Do you have any plans in place if you’re otherwise unable to run the business?

A “Business Succession Plan” is a key document that minimises disruption and makes sure a new leader can seamlessly step in if needed.

It’s also crucial to consider the role of your will. You may want certain people, such as your spouse or children, to receive your wealth and assets. If you already have a will, can the executors named deal with both your personal and business assets?

Appointing a business executor, who is responsible for dealing with your company assets only, will allow for a smooth and timely transition to the right people.

You should also think about what you’d like to happen if you’re unable to manage your assets temporarily while you still own the business. “Lasting Powers of Attorney” for business purposes can safeguard your plans in the event of illness or a serious accident, for example. You may already have a personal Lasting Power of Attorney. However, the people you trust to make personal decisions on your behalf may not be the right ones to deal with your business affairs. If you have someone who knows the business well or shares your values and professional vision, you could consider appointing them as your business attorney.

Preparing for an exit

Making an informed choice about your business’s future takes time and careful consideration. There isn’t a one-size-fits-all option.

Whatever route you choose, your exit will run more smoothly if you are properly prepared. From a personal perspective, it’s essential to regularly review your succession planning as a whole, especially as the value of your estate can change significantly after you leave your business. Planning for inheritance tax both in your will and during your lifetime will stop you missing out on any available reliefs and exemptions and let your beneficiaries enjoy as much of your estate’s value as possible.

From a business perspective, it’s wise to review areas of structure, management and operations as early as you can, as they will always be the subject of scrutiny. This will help to give your buyer, investor or other interested parties confidence that your business has been managed in a responsible way. You’ll also feel confident in the value of what you are selling and the price you’re seeking.

To prepare, we recommend looking at (and addressing if necessary) the following key areas:

Contracts and business review
Demonstrable, sustainable profits and supportable forecast
Identify specific weaknesses
Rationalise business
Separate "family" or "owner" issues
Estate planning/tax (transferring enterprise value)
Valuation
Strong management (maintaining value)
Good information, systems and paperwork

Two of the above areas have been especially important during our transactions over the past 18 months:

Valuations - Many businesses have seen significant short- and long-term changes in their financial position due to the COVID 19 pandemic and the UK’s transition out of the EU. This disruption can make valuing them very difficult. It is well worth pre-emptively thinking through your market value expectations and how you’re willing to accept payment. For example, staged and contingent payments have become more common over the past year (conditional on the future financial performance of the business or retention of key contracts). These options can work well for both buyers and sellers, allowing EBITDA and pricing to stabilise over time.

Good information, systems and paperwork - Being transaction-ready will make it easier for third party buyers or investors to complete their research (or “due diligence”) into your business. They will be keen to know how your business has been affected by the pandemic, how it has responded (including steps you’ve taken to mitigate the impact) and how it has prepared for the future. By looking into this now, you can quickly resolve any issues you identify to avoid them impacting price.

What’s next?

In our second insight of this series, we’ll highlight the ten issues that are most likely to impact an exit timeline or sale price. Our third insight will discuss structures for holding your wealth once you have exited your business.

If you’d like to know more about how to develop a succession plan for your business, please get in touch with a member of our Corporate team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.