Selling Your Business – How to prepare for a successful exit

Around 50% of our clients have generated their wealth through their business interests. We know how critical it is to prepare for the time when you come to sell all or part of the business you have poured blood, sweat & tears into over the years.

Naturally getting this right takes planning. Your preparation will require both Financial & Mental Readiness.  In this blog we address how focused preparation in these two key areas can make all the difference to the outcomes & your own ‘happily ever after’. What’s more, the information that emerges from this process is invaluable for effectively managing your assets pre-sale, structuring the sale optimally and developing a strategy for the proceeds from it.

Business owners face unique challenges

As a business owner, you have spent a considerable amount of your time working hard to grow your business and make it a success. However, we know that business owners can face a unique set of challenges when it comes to their personal planning:

  • Investing in the business vs. saving for retirement
  • Successfully transferring business ownership
  • Knowing when to sell your business and for how much
  • No plan B for the unexpected / worst

Financial Readiness

Financial Readiness is essentially addressing the question ‘Are you financially prepared for an exit from your business?’ Simply put if your personal wealth outside the business is not enough to take care of you in retirement, how can you retire?

Knowing your personal number is as important as knowing what your business is worth and being fully prepared for what will undoubtedly be a rigorous exit process. Many business owners get overwhelmed by the business side and neglect the personal side. How can you sign off on your biggest assets without knowing a clear number to sustain yourself in the future?

A good financial planner will help you here. We’ll help you ensure making provision for ongoing personal and business interests and income replacement strategies, with safeguarding your capital and protecting your family central to the plan. As you’d expect most (if not all) planning includes taking tax efficiency into account.

Tax has a huge influence on how much cash owners walk away with following a business sale. There’s much wisdom in the adage ‘don’t let the tax tail wag the dog’ but business exit is one area where planning makes a huge difference to outcomes. When it’s planned in the right way, you could keep as much as 90 percent of your sales proceeds. But if it’s overlooked, HMRC payments could take as much as 60 percent of the sale value.

The earlier tax planning starts, the better the likely exit outcome. The suggested optimum time to begin discussions is three years before a sale.

Our How Much Is Enough? blog explains how we help business owners answer the big question – how much do I need to live the life I want?  You Millen Capital planner will help you create clear & detailed goals – for example rather than ‘sell in next 3 years & retire’, plan to ‘sell within next 3 years with value to give net £5k month for the rest of my life to reward my hard work put into building my business.

Clear financial goals mean you will know if the offer is too low (as it falls short of your personal number). Offers may come to you at various times in the run-up to you deciding it’s the right time to exit and being prepared means you can evaluate any offer and understand the trade-offs of continued hard work. Your goal may include working just a few days a month and keeping a bit of equity in the business – this is about understanding how your life looks after your sale, not just the bank balance.

Which brings us nicely onto Mental Readiness: Are you mentally prepared for an exit from your business?

Mental Readiness

Being mentally prepared to leave your business may be the largest challenge that you face. Creating and growing a privately-held business is far more than a job; in fact, that business is often a large part of an owner’s identity. Being the boss, the enjoyment of influencing and empowering others, achieving personal goals through the business creation process, friendships & loyalties to clients & partners.. there are many emotional factors tied to being a business owner.

Business owners, in particular, tend to focus on running and growing their businesses, so some have not considered these issues. Finding time to focus on what matters most to you can be difficult today. Ask yourself searching questions like these to aid you in deciding whether or not it is time to leave your business:

  • How involved are you in day-to-day business operations?
  • Do you have a plan for how you will spend your leisure time or retirement? If anything was possible, what would you do?  Who would you spend time with? 
  • Do you see your business as a return on invested capital or as the provider of your lifestyle?
  • Are you “addicted” to your business? For instance, will it be hard to give up control and pass it along to someone else?

Don’t delay planning

Even if you are not mentally ready today to depart, it does not mean you should put off planning for your exit – in fact, just the opposite is true. Far too often business owners procrastinate planning because “I’m not ready”. By the time they are ready, frequently one or more potential exit paths have closed – a missed opportunity. For others, shifting personal circumstances mean they need to bring forward their exit plans.

Furthermore it can take years to get businesses in the right shape to maximise exit value. Preparation puts the seller in a strong position financially & mentally to negotiate a favourable price and help to ensure a smooth sales process.

Take steps today to work with a financial planner and understand your personal financial objectives. Then the next stage can be to meet corporate finance advisers and understand potential exit options and valuation. Just know that once you are on the rollercoaster ride of marketing, vendor due diligence, head of terms and the race to completion, this will not be the time to think about your financial plan for the first time!

Next steps

As a business owner, your focus has been on running and growing the company. When selling your business, it’s imperative to take steps to plan for your personal financial future.

We’ve just published ‘Selling Your Business? written for business owners. Download it here

We will help answer the BIG QUESTION:- If you SELL, will it be ‘ENOUGH’?

Please get in touch if you’d like our help.