Selling your business – 5 key steps to optimise your exit strategy

A recent article from eprivateclient¹ noted that UK entrepreneurs made a collective £11.8 billion for selling their businesses in the last year. This significant figure got me thinking: what can entrepreneurs do to maximise the value of their business on an exit?

We often get asked by clients how best to prepare an exit strategy ahead of selling your business. The key is to prepare as early as possible, which means:

1. Getting the support of an experienced lawyer and accountant who you trust and who will work collaboratively with you to achieve your strategic goals;
2. Talking to your advisers about the company’s valuation, the basis of that valuation and how a potential buyer will perceive the company’s future earnings potential; and
3. Looking critically at your business to identify any defects that a buyer can use as an excuse to reduce the purchase price ahead of selling your business. On the legal side, this includes giving consideration to:
   • whether you have a clear succession plan in place and what happens in the wake of selling your business – will your exit strategy create scope for you to remain involved?;
   • whether the company structure needs to be tidied up. Are there any unused or dormant companies with no purpose which have been left in the company structure? It is key to examine the impact of historic acquisitions) before implementing your exit strategy. Equally, do any assets needs to be moved to another group company before selling your business?
   • whether the company is a party to any income generating joint ventures or collaborations and whether there are any contractually binding agreements in place to evidence the division of any future profit;
   • whether the business relies on key personnel and if so, how they will be incentivised in the pre and post exit phases; it is also worth considering if there are signed employment contracts in place that may impact your exit strategy;
   • the resilience of your customer base, how they will react to the sale and whether customer contracts are legally binding. This is critical for the buyer so they can clearly evaluate the company’s future revenue stream;
   • the reliability of the supply chain and your ability to mitigate any supplier delays;
   • whether the company has all the necessary up-to-date licenses and consents; and
   • whether the business owns or licences all the assets it needs to operate – in particular, does the company own or licence the intellectual property rights it relies on? Are the intellectual property rights registered and up-to-date both nationally and internationally (depending on where the business trades)? Is there a signed lease in place for the premises the company occupies?
4. Meanwhile, your accountant should complete a financial due diligence exercise to ensure the company’s finances and its financial reporting (on a monthly and annual basis) are healthy and robust. Again, this will provide any potential buyer with comfort that you operate a well-run business; and finally
5. thinking about what the exit means to the entrepreneur on a personal level. When determining an exit strategy this element can sometimes get overlooked as the founder focuses on running the business and executing the exit. However but it’s vital to think about the personal impact of selling your business from the outset. It’s time well spent working closely with your advisers to understand what you need by way of sale price in order to (i) meet your retirement goals and (ii) structure the payment to maximise your personal tax position and utilise available tax reliefs.

With potentially vast sums at play, it’s also worthwhile reviewing your estate planning position and your will to ensure it still accurately reflects your wishes now that your estate has grown in value.

For many entrepreneurs, selling their business is an exciting yet emotional undertaking. During the sale process, they are tasked with maintaining the company’s trading performance whilst engaging with the buyer and its advisers. At BDB Pitmans we regularly support clients with pre-exit due diligence, working to identify any gaps in the business as well as carrying out remedial work designed to help maximise the exit value for our client.

If you need legal support with any issues linked to launching or exiting a business, please visit our Entrepreneurs webpage to see how we can help you.

¹Eprivateclient