How do you plan to exit your business?
As a business owner, you’re likely focused on growing your business, making sales, and managing day-to-day operations. But here’s a question that might seem a bit far off: Have you thought about how you’ll exit your business?
I know, I know… exit planning probably isn’t the first thing on your mind when you’re building your dream company. But trust me, having a clear exit strategy from the start is just as important as getting the business off the ground in the first place.
Here’s why it matters and what you should consider for your limited company.
What is an exit strategy?
An exit strategy is basically a plan for how you will eventually leave or sell your business. Whether you want to sell to a third party, pass it on to family members, or wind it up when you're ready to retire, thinking about your exit from day one can ensure you have a smooth and profitable transition down the road.
Why plan now?
You might be thinking, I’m just starting my business. Why do I need to think about leaving already?
Well, life can take unexpected turns, and you don’t want to be scrambling for a plan when it’s time to move on. It can also be harder to implement changes further down the line, if you haven't laid the groundwork from the beginning.
Planning ahead can help you:
- Maximise the value of your business when you’re ready to exit.
- Minimise tax liabilities, making sure you don’t end up with an unwelcome surprise come tax time.
- Ensure continuity and stability for your employees, customers, and business partners.
- Avoid unnecessary stress when it’s time to move on.
Things you need in place from day 1:
1. Legal Structure and Governance
A strong legal structure is crucial for any business. As a limited company, you’ve already taken the first step. But beyond that, you should have your company’s governing documents (like your Articles of Association) clear and up-to-date. This will determine how decisions are made and who controls the business. When it’s time to exit, you don’t want to be caught up in complex disputes over ownership or control.
2. Financial Records & Accounting
A tidy set of digital accounts is more than just a legal requirement, it’s essential for a successful exit. Potential buyers will want to see your financial records, so having everything in order from the start will make that process much easier. Hire an accountant who understands exit strategies and can help you set up a financial system that supports future planning. A business with clear, well-managed finances is much more attractive to buyers!
3. Valuation and Growth Planning
You should have a rough idea of how your business will grow and what it might be worth in the future. This doesn’t mean you need to get a formal valuation done immediately, but it’s important to keep growth in mind. What are the key factors that will increase your business value? Do you have intellectual property, long-term contracts, or strong relationships with clients that could boost your selling price?
4. Succession Plan (even if it’s just you!)
If you plan on passing the business on to someone else, whether a family member or a trusted employee, make sure to outline how that will happen. Even if you’re the only person involved now, it’s a good idea to have someone ready to step in if you decide to sell or retire. You never know what could happen, so a succession plan is a smart move.
5. Tax Planning and Benefits
Exit planning and tax planning go hand in hand. Understanding how you’ll be taxed when you sell the business or when you retire is critical. Take advantage of tax reliefs like Entrepreneurs’ Relief (now called Business Asset Disposal Relief), which can reduce the amount of Capital Gains Tax you pay when you sell your shares. Working with a tax adviser from the beginning can save you a lot of money down the line.
6. Employee Considerations
If you have employees, think about how they will be affected by your exit. Will you offer them the opportunity to buy shares or stay on under new ownership? Maybe you’re considering an Employee Ownership Trust (EOT) in the future? Having conversations about employee ownership early can set the stage for a smooth transition.
What happens if you don’t plan ahead?
Not having an exit strategy can lead to complications later. You could end up paying more taxes than necessary, losing out on opportunities to sell your business, or facing disputes over ownership.
Worse, you might find yourself in a position where you have to sell under less-than-ideal conditions, just because you didn’t take the time to think it through.
Start early, exit on your terms
It’s never too soon to start thinking about your exit strategy. The earlier you begin planning, the more control you’ll have over the process and the better off you’ll be in the long run.
It’s important to note that if you’re planning on exiting your business within the next 5 years then you definitely need an exit strategy in place.
Whether you’re planning to pass the business on to a loved one, sell to a third party, or simply close up shop when the time comes, making those decisions now can help you achieve your goals and make your exit smooth and profitable.
So, start now! Work with an accountant who understands exit strategies and can act as a neutral third party, to ensure you’ve got the right strategy in place. It might seem like something for the distant future, but it’s a lot easier to plan for an exit while you’re in the driver’s seat.
If you would like to find out more about our Succession Planning service, please give us a call or drop us an email. We’d love to help you get the rewards you deserve for all your hard work.