Plan your exit, don’t leave it until the last minute…
When timing your departure, it's best not to leave it until the last minute. For many of us, planning our future succession often falls victim to the tyranny of the urgent. Consequently, many business owners fail to prepare their businesses for sale and when the time comes, are left choosing between derisory offers and failure.
Timing your departure..
Businesses are valued using profitability and cash-flow and both need to be optimised before your departure. Leadership teams need to be strengthened and perceived risks need reducing, making your business resilient and ultimately more attractive to potential acquirers.
Acquirers use future profits to pay back funding and relative valuations are often based on multiples of profit. Businesses with higher profit margins command higher offers and are easier to sell. Read more about value optimisation.
Regardless of whether you’re selling to your employees or an outside investor, when the time comes to step away, a strong leadership team will enable you to extract yourself from the business and avoid potential onerous earn-outs. Read more about leadership transition.
Debt and debt-like items are refinanced when a deal completes reducing the final sale price. Allowing enough time to reduce debt in advance of selling your business should be part of your exit plan, meaning you walk away with more of the sale proceeds on completion. Read more about debt reduction.
Company owners are accustomed to an element of risk; however, acquirers are risk averse when faced with funding an acquisition. Reducing perceived risk will make your business easier to sell. Reducing risk before transitioning to employee ownership will leave your employees with a resilient and healthy business moving forwards.
With the current UK tax regime, it’s more tax efficient to leave cash in your business in the years prior to your exit. When a third party or MBO transaction completes, cash and cash-like items can be extracted at a lower rate of tax when compared to dividends and salaries. When vendors sell to an EOT, cash and cash-like items can be extracted tax free on day 1.
Call us on 01384 274 778 / 075 888 925 88 to discuss or go ahead and book a free consultation to explore your options.