Does your future depend on achieving the right exit from your business?

At some point, every business owner will move on. Whether that’s retirement, a new venture or simply stepping back, the outcome depends on how well you’ve planned. A successful transition can have a lasting impact for you and for those around you. Planning ahead gives you more control and greater confidence in the end result. 

Before you get there, it helps to understand what kind of business owner you are and how that shapes your approach to exit planning. 

What kind of business owner are you? 

Here are four types of business owners: 

1. The entrepreneur who started their business with an explicit end in mind. They will have a timeframe, an exit value and their future mapped out. It may not all go to plan, but they have a focus on and work towards a defined outcome. 
2. The person who sees running their business as a substitute for being employed. They focus on earning a ‘salary substitute’ and don’t consider building value to achieve future wealth. If there is something to sell when they come to exit, they are unprepared to make the most of it. 
3. The owner who diligently builds a business and believes it must be worth something. They get to the point of wishing to retire and move on but have never considered how they will extract value and therefore may be disappointed with the outcome. 
4. The person who builds up their business, usually sacrificing short-term gain (salary, dividends, time) and develops a plan for how and when they will transfer their ownership. 

Which one are you? 

Why planning early matters 

If the terms of your exit are important to you, then you might consider getting help – particularly if you are thinking two to five years ahead. 

When we start working with a business owner on their exit plan and preparing for their ownership transition, we start by considering the needs of the individual(s). Our initial planning session works through a number of elements of an exit to create a ‘desired outcome’. Not everything you might want may be achievable, or some elements may come at too high a cost, but understanding the factors and the trade-offs is a great starting point. 

In addition to considering how much you would like to walk away with and when you would like to exit, we will work through  factors such as your attitude to deferred payments, conditions or performance criteria you might accept, your involvement in the business in the period between a deal being done and completion, elements of the business you want to protect, limitations on your future business activity if you are not yet ready to retire, plus anything else that is on your mind. 

When there’s more than one owner 

If you are the sole owner of your business this is relatively straightforward. However, if you are a co-owner, you may have a more complex situation to manage. 

In an ideal world you and your co-owners will have aligned views on the timescales, value and type of future ownership transfer. If you started the business together you may have set out your ‘end game’ and be working towards it. However, in our experience the majority of co-owners do not have such an agreed view of the future, or over time their views diverge. Many have not had a ‘proper’ conversation about the future and their exit. 

Here are some example scenarios where a clear plan and agreement are needed: 

• Significantly different time horizons for each shareholder’s exit – for example, one of you wishes to retire soon but the other(s) still want to run the business. 

• Different ambitions for the growth path and hence value generation of the business – one may be content with their annual salary and dividend, another focused on a high exit value. 

• Different views on financing growth – some may want to bring in a shareholding investor, which could mean dilution. 

• Conflicting opinions on the type of exit – for example, one prefers a management buy-out, another a trade sale. 

Is this important? Yes of course. If you are to achieve the outcome you want from your time owning your business, you need to have an understanding with your fellow shareholders. 

Start planning early 

A good exit doesn’t happen by accident. Whether you’re going it alone or planning with others, clarity around what you want and what you’re willing to trade gives you the best chance of achieving it. 

If your future depends on a well-managed exit, now’s the time to start planning. 

If you’re starting to think seriously about your exit, get in touch. We’ll help you take the first steps with clarity.