In our previous article we talked about the different types of business owner and the importance of setting out your desired outcome from a future exit. If your future and that of your family is dependent upon getting the transfer of ownership planned and executed well, setting out your desired outcomes is a key step. 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, in fact many have not had a ‘proper’ conversation about it. 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.
Who do you need to consider? Your fellow owners of course but there are other ‘stakeholders’ you should consider when planning your exit. For example non-shareholding directors of the business, investors, strategic partners, and employees (especially potential participants in a management buy-out or employee ownership trust).
The following are example scenarios that require a plan and agreement to enable you to achieve your desired outcome or at least an agreement that sufficiently meets each party’s requirements:
- Significantly different time horizons for each shareholder’s exit which may come about if 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 where one of you may be content with their annual salary plus dividend but the other(s) are much more focussed on achieving a high exit value.
- Different views on how you will finance growth in the business especially if one or more shareholders want to bring in a shareholding investor potentially requiring dilution of your shareholding.
- Conflicting opinions on the type of exit, for example if one of you is a strong supporter of selling the business to the management team whilst another is keen on a trade sale.
- The realisation that you have a shareholders’ agreement, perhaps drawn up long ago when the company was formed, but it hasn’t been reviewed and no longer serves a useful purpose (in fact it may be detrimental to achieving an agreed exit).
The second part of our exit planning process considers the various shareholder and stakeholder views to help identify areas of agreement and potential conflict well before you look to sell or transfer ownership. Sometimes the process is enough to trigger a conversation and agreement, and sometimes it surfaces more fundamental differences that need to be worked through. Either way we can provide expert, experienced and empathetic support.
If your future is dependent on a successful business exit and you are contemplating it being two to five years away now is the time to start your exit planning. Contact us to find out more.
(Background photo created by efe_madrid – www.freepik.com)