Exit and Succession Planning is an inevitable part of any business’ journey and it can often be an extremely challenging, stressful and emotional process for those involved.

The aim of this article is to demonstrate the holistic approach that should be considered when thinking about exiting a business, whether the intention is to pass the legacy onto a family member or sell to an external third party. By breaking the overall process down into smaller stages, you can begin to understand how each accounting and finance specialty is strategically drawn upon as the process progresses and how each department works collaboratively to ultimately achieve a common objective.

If there’s anything that you take away from this piece, let it be the importance of getting a plan in place, well in advance of when you think it might be time to exit your business. All too often, an owner thinks they are on the verge of their best year yet and hangs on a little too long. Alternatively, they only think about selling when the business is starting to struggle, however, purchasers look to buy potential. They will want to see how they can develop the business and improve profits – businesses that have hit a plateau, or are in decline, are far less attractive. Ideally, you should kickstart the conversations with your accountants and business advisors five years prior to your planned exit date – this gives you two years to undertake Stages 1, 2, 3 and 4 and a further three years to work on the sale with your Corporate Finance team in Stage 5.

Stage 1 - Business Advisory Services

The exit planning process begins when you, as a business owner, make the decision to consider the succession of the business. In recognising that at some point, your role in the business will come to an end, this mindset shift should encourage you to reach out to your accountants’ Business Advisory Services team and work collaboratively with them to establish your personal goals. Together, you might consider the age of your children and whether they would like to be involved in the business moving forwards, or perhaps you would be thinking about the capabilities of your current staff and management team and how to incentivise them. At this point, your business advisor would also start to look at your profit and key performance indicators (KPIs), making sure they provide you with timely and reliable information about your business’ finances and ensuring that your internal team can provide the information you need.

Stage 2 - Virtual Finance Office and Audit

A strategic view of your finances using accurate data is critical, so if you don’t have the internal capacity to deliver this, you could then look to outsource this to a Virtual Finance Office (VFO) provider. A VFO provides ongoing support, not just year end accounts which look back at the past year. They are a team of forward-planning experts, who can help you establish reliable internal systems, budgets and KPIs. You could also look to get the business accounts audited. The audit process provides an additional layer of credibility, which, from a buyer’s perspective, is an attractive prospect.

Stage 3 - Financial Services

At this point in the exit planning journey, a Financial Advisor would be introduced to discuss your own personal financial circumstances. Whatever the outcome of your exit plan, whether you hope to sell to a third party, or pass the business over to a family member, it needs to fund your personal ambitions. This means that any personal financial objectives, from property investments to pensions, need to be factored into the plan and options need to be discussed.

Stage 4 - Tax Advisory

Running alongside your business and personal plans, at all times, is tax advisory. Everything has a tax consequence and a huge part of the success of your exit plan is the tax efficiency of it. Specialist tax advisors can help develop and implement a strategy for both your business and your personal tax affairs, in order to ensure that pitfalls are avoided, opportunities are maximised and valuable reliefs secured and preserved. Your tax team could suggest using Employee Share Schemes to incentivise and retain your existing employees and management team. They would discuss the advantages and disadvantages of each tax strategy as it relates to you and your business and work with you to choose the one which best aligns with your objectives.

Stage 5 - Corporate Finance

If you decide that selling your business is the route you would like to take, corporate finance advisors will take you through the sales process. Firstly, they’ll consider whether you have something worth selling. They’ll be asking you about your unique selling point (USP) – your business needs to provide something of value to a buyer and your USP therefore needs to be short and concise, so that any interested parties can see at a glance what you are offering. Timing is also key, and your corporate finance advisors will be trying to decipher whether your business is actually ready to be sold. Ask this question from your buyer’s perspective. If you were looking at buying a business, what would you want to see? A business that is solely reliant on its owner is much more difficult to sell, as the value attaches to the individual, not the business. So think about how your responsibilities are being delegated to the management team and if the business couldn’t survive without you for a month, then you are not ready to sell.

Getting a valuation for your business at this point is a great way to determine your next steps and by doing this three years ahead of selling, you then have time to implement any further changes, which could maximise the price you achieve. During this stage, your business advisor would be continuing to monitor your business activity, advising you to focus on services or products that maximise sales and only serve to add value and increase profitability.

Alternatively, after discussions with your corporate finance advisors, you might decide that selling is not the right solution for you. In this case, they would then be able to guide you through the process of closing down the business and undertaking solvent liquidation.

If you would like to find out more about the exit and succession planning process, or learn about the range of services that are on offer, HB&O would be more than happy to provide you with some tailored, no-obligation advice.

Visit www.hboltd.co.uk or call 01926 422292.

By HB&O, Chartered Accountants in Coventry and Leamington Spa.

www.hboltd.co.uk