You’ve worked tirelessly to get to where you are today. Growing your firm and maximising profitability as best you can.
Planning for your own personal exit* from your business may not be high on your list of priorities. Many entrepreneurs and business owners neglect to plan for their own exit and fail to meet the goals that they have for their company and for themselves as a result.
Fail to plan…
Every entrepreneur will eventually have to leave their company. This could be in one year, five years, 25 years or beyond, but it will have to happen at some point.
Failing to take the time to design your own personal exit plan could leave you unable to fund your lifestyle after the exit, impacting the sale value of your company and its future prospects and performance.
Our advice would always be to prepare a written exit plan. This plan should seek to answer the following questions:
1. What’s your timeline?
Timing your exit is highly personal and guided by what else you’d like to do with your time.
Whether you’re exiting to retire, spend more time with family, or to take up a new venture, you’ll need to decide when you want that to happen.
Of course, the market for potential buyers will also help you decide on when to sell. Good timing could be the difference between securing the financial future of you and your family, or toiling away in your business for years to come.
2. What do you want?
Most entrepreneurs will have the goal of maximizing the value of their business and leaving on their own terms.
This goal can be hard to quantify. But there’s a more evocative question we can ask to find out what you want from the sale of your business.
How much is enough?
Enough to buy your dream home. Enough to holiday year around. Or perhaps enough to gift you the time you need to enjoy life and live financially independent and free.
It’s the total amount of cash, or near cash assets that someone requires to be financially free, which is, to have their expenses covered by the income those assets generate.
3. What’s your business worth, and how can you increase its value?
While businesses can be valued in several ways, there will often be a prevailing valuation method within your industry. Identify what that is, get a current valuation for your business, and focus your efforts on maximising this metric for your business. The Deal Advisory team at Gerald Edelman may be able to help you with this.
4. Who are your buyers?
This is where you identify and evaluate your exit strategy options. There are a number of different parties you might sell your business to. If you’re lucky you’ll have options. Management buyouts, private equity, public offerings, mergers and acquisitions, or a transfer of ownership (e.g. a gift to family members).
As part of a comprehensive exit plan, you’ll need to consider which type of buyer you’re getting your business ready for. Different buyers will be interested in different things, and your exit preparation will need to change to suit the right type of buyer. Again, Gerald Edelman are experienced in evaluating your exit options, getting your business ready for those different options and helping you find the buyer.
5. How can you protect what you’ve built?
You’ve worked hard to build up your business, so it makes sense to protect it. You may be able to ensure the continuity of your business by encouraging key people to stay in place and insuring against them becoming too ill at work, or dying. You’ll already have cover for your buildings, stock, cars and other assets, but you may not have covered your single biggest asset; your key employees. These are the individuals responsible for driving profit and cashflow within your business.
This type of continuity planning can be essential, and is often a prerequisite for certain types of buyer!
6. What’s the plan for your personal wealth?
Don’t wait until after the sale to start planning what to do with the proceeds. This should be done well in advance.
The wealth you’ve built should be protected, optimised for tax-efficiency and invested wisely. After all, why build all that wealth in the first place if you’re not going to look after it? Speak to your financial planner to get the wheels in motion on this. If you don’t have one yet then find a specialist that will sit with you for a no obligation chat.
The importance of advice
An exit plan should be as individual as you are. To work for you, it needs to be tailored to your circumstances as well as your personal and business goals.
Most business owners will only sell a single business in their entire life. There are professionals, like those at Gerald Edelman, that help entrepreneurs like you every day, so seeking advice from those who have done it before can make the transition smoother, and immensely more personally and financially rewarding.
Your financial adviser is another key member of your exit planning team, particularly when it comes to protecting what you’ve built and planning with your personal wealth. In these areas, we recommend getting expert advice to help you build a plan that works for you.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
*Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James's Place.
Contact: JHF Wealth, York House 23 Kingsway, London, WC2B 6UJ
JHF Wealth is a trading name of J.H.Flemmings Limited. J.H.Flemmings Limited is an Appointed Representative of and represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of which are set out on the Group's website www.sjp.co.uk/products. The titles 'Partner' and 'Partner Practice' are marketing terms used to describe St. James's Place representatives.