Exit planning: a guide to the critical stages of business growth from start-up to exit
In the conclusion to her three-part series, Corporate Finance Director Siobhan Moore takes a closer look at exit planning as the final stage of the start-up-to-exit business lifecycle.
In part one of the series, Siobhan covered the start-up and early growth phase, and in part two, she provided a step-by-step guide to scaling a business.
What is exit planning?
Exit planning is the process by which a business owner or group of shareholders prepares for the eventual transition out of the business. Whether their exit is a trade sale, a sale into employee ownership, or a private equity buyout, effective exit planning maximises the value of the business for shareholders and supports a smooth transition to new ownership. For many business owners, this stage in the journey is very emotional.
In practice, exit planning is typically provided by a firm of business advisors like Consilium and entails the following:
- Business valuation: assessing the potential market value of the business and collating current market data to support that valuation
- Succession planning: the process of identifying and preparing a successor which could be family members, employees or external buyers
- Building an exit strategy: establishing the personal and professional goals of the shareholders, assessing the viability of succession options like a Management Buyout or Employee Buyout, and analysing market conditions
- Vendor due diligence: in-depth analysis, on behalf of the seller, to assess the overall financial strength of the business, allowing owners to address any issues and maintain control
- Tax strategy: developing a plan to ensure you pay the right amount of tax on your transaction and assess potential liabilities that might deter prospective buyers.
Why is exit planning important for business owners?
As part of the start-up-to-exit business lifecycle, exit planning is essential to safeguard the investments made by business owners—both financial and non-financial—and to protect a loyal workforce. Effective exit planning also presents shareholders with the opportunity to maximise value and leave the business on their terms and in line with their own goals.
Research by wealth management firm Charles Stanley indicates that nearly half of UK business owners do not have an exit plan in place. Failure to put in place an exit plan creates the following risks:
- Financial loss: without an exit plan in place, business owners may sell for less than the true value of the business and compromise their personal financial goals
- Unplanned exit: issues like illness or market downturns can force business owners to leave abruptly, compromising the operation of the business and its prospects
- Prolonged engagement: without a clear exit plan, business owners can find it difficult to detach from their business causing prolonged engagement, possible burnout and potentially compromising growth
- Operational disruptions: without a succession plan in place, the departure of a business founder can leave the company lacking strategic direction, negatively impacting productivity
- Job insecurity: poorly planned exits create uncertainty amongst staff, impacting morale and potentially leading to the loss of talented or experienced employees.
Even for small businesses, the scale and scope of work required to undertake exit planning successfully is extensive. The upsides, however, are considerable and reinforce the need to engage a firm of experienced business advisors like Consilium to work with owners to achieve a successful outcome.
Key takeaways: exit planning for UK business owners
- Exit planning is the process by which a business owner or group of shareholders develops a strategy to prepare for the eventual transition out of the business
- Effective exit planning will involve valuing the business, thinking about the owner’s ideal exit (usually an opportunity to realise some or all of their investment), building an exit strategy alongside key stakeholders, and developing a tax strategy for both the company and the business owner/shareholders
- Exit planning is essential to safeguard the personal investment – financial and non-financial – of the business founder, protect a loyal workforce, and secure the founders’ legacy
- Without an exit plan in place, business owners risk selling their business below its true value, creating operational disruptions, potentially suffering burnout, and creating job insecurity/high employee turnover
- The scale and scope of work involved in exit planning are extensive and highlight the need to engage a firm of experienced business advisors.
- Early exit planning allows for a more gradual shift in company strategy, but later-stage exit plans are still worthwhile.
Consilium: trusted business advisors for your company
Navigating the different stages of a business lifecycle is both rewarding and challenging. Each phase is unique and requires different skills and planning.
At Consilium, we are committed to helping our clients through each stage to allow them to achieve both their business and personal goals. For many business owners, this will be a once-in-a-lifetime opportunity that is about growing a business and leaving a legacy.
No matter what stage of the business journey you are at, Consilium would like the opportunity to become your trusted advisor. We work with entrepreneurs across Scotland and the UK, helping them to achieve their goals and build great businesses.
For an initial consultation or to discuss the points raised in this article, contact Siobhan Moore.
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Siobhan Moore is a qualified Chartered Accountant with extensive experience across all aspects of Corporate Finance lead advisory and Financial due diligence services for business owners and investors. Siobhan offers unique insights to business owners seeking investment thanks to her practice experience and her time as an investment manager for a leading early-stage Scottish impact investor.
