The Importance of Exit Planning: Why Every Business Owner Should Prepare Early

For many business owners, the day will come when they need to consider selling their business. Whether it’s to retire, pursue new ventures, or pass the reins to someone else, selling a business can be a complex and challenging process. What many owners don’t realise is that up to 95% of businesses fail to sell. This is often not due to a lack of interest but because the business simply isn’t prepared for sale. Without proper exit planning, you may find yourself in this position, struggling to attract buyers or failing to secure the value you deserve.

Why Exit Planning is Essential

Exit planning is crucial for any business owner who wants to sell one day, even if that sale is years away. The process allows you to structure your business so that when the time comes, it is in a sellable state. The earlier you start planning, the more time you have to address potential issues, maximize the business’s value, and ensure a smooth transition.

You may be lucky enough to receive an offer ‘out of the blue’ from a potential buyer, but this will still be very risky to pursue if your business is not ready for sale, potentially wasting much of your time and energy levels which are better spent elsewhere on growing your company.

Without the right preparation, you risk being one of the many business owners whose company is not attractive to buyers. Below are some of the most common reasons why businesses fail to sell:

Why Many Businesses Are Not Sellable

  1. Not Profitable Enough: Even if your business has substantial turnover, it may not be appealing if the profit margins are low. Buyers are looking for businesses with strong financial performance, not just high revenues.
  2. Not Big Enough: Small businesses can be too risky for buyers, especially if they don’t generate enough cash flow to cover operational costs and generate profits.
  3. Too Big: On the flip side, businesses that are too large may require more investment and management than potential buyers are willing or able to provide.
  4. Autocratic Management: If the business is overly reliant on you, the owner, it can be difficult for a buyer to step in without a steep learning curve or operational disruption.
  5. Poor Systems (Operational, Financial, Strategic): Businesses lacking documented processes or with outdated technology and systems are harder to sell. Buyers want businesses that are streamlined, scalable, and efficient.
  6. Too Soon: Sometimes businesses are sold before their full potential is realised. If an opportunity hasn’t been fully explored or proven, buyers may hesitate.
  7. Growth Opportunity Has Passed: If your industry is in decline or your business has hit a growth ceiling, it can limit its appeal to buyers looking for future potential.
  8. Sector-Specific or Market Conditions: Certain industries face unique challenges, from regulatory burdens to economic downturns, which can make a business less attractive.
  9. Owner Not Ready or Not Realistic: Sometimes the business is sellable, but the owner isn’t emotionally or practically prepared to sell, or they have unrealistic expectations about the value of their business.

What is Exit Planning?

Exit planning is a strategic process designed to prepare your business for sale or succession. It involves assessing your business’s current state, identifying areas for improvement, and implementing changes that will enhance its attractiveness to buyers.

What’s Included in Exit Planning?

  1. Financial Preparation: Ensuring that financial records are clean, transparent, and demonstrate consistent profitability. Potential buyers will scrutinise financial health closely, so having well-organised records is key.
  2. Business Valuation: An high level valuation of your business is essential to understanding its market value and setting realistic expectations.
  3. Improving Profitability: If your business isn’t profitable enough, exit planning focuses on identifying ways to improve margins, reduce costs, and increase revenue.
  4. Strengthening Systems and Processes: Buyers look for businesses with well-established operational, financial, and strategic systems. Exit planning ensures that your business runs smoothly without your day-to-day involvement.
  5. Building a Strong Management Team: A business that can operate independently of its owner is far more attractive to buyers. Exit planning helps transition responsibility to key management members and ensures continuity post-sale.
  6. Timing the Sale: Exit planning involves considering market conditions, your industry’s health, and your personal readiness to time the sale for maximum benefit.
  7. Tax Planning: Proper tax planning can significantly impact how much you keep after the sale. Exit planning includes strategies to minimise taxes on the sale proceeds.
  8. Preparing for the Transition: Planning the handover to the new owner, whether it’s an internal or external sale, is vital for ensuring business continuity and maintaining relationships with customers, suppliers, and employees.

Supporting your Exit Planning Strategy with Johnston Wood Roach

Exit planning is not just about selling your business; it’s about ensuring you’re in the best possible position when the time comes. By starting early, addressing key areas, and working with a team of professionals, you can avoid the fate that 95% of business owners face and maximise the value of your life’s work, so you can enjoy a happy retirement.

Johnston Wood Roach are specialist Chartered Accountants and Tax Advisors in Waterlooville. Our specialist team can help at every stage of your exit strategy planning for your business. If you’d like to know how sellable your business is at the moment, contact us today and we can complete a quick questionnaire to give you a score.

We can also discuss and advise on your possible exit routes. If you’d like to then go ahead and create your own exit plan, we will have a 2-3 hour workshop with you where we cover all areas of the business and develop your action plan. The sooner you can start on this, the better. There may be 5 key things to focus on, or there may be 50. The aim is to make your business more valuable and as attractive to as many different purchasers as possible.

Contact our friendly and knowledgable team today on 02392 269977 or email enquiries@jwraccountants.co.uk today.

How to prepare an exit planning strategy for your business

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JWR are a three director, progressive, modern and friendly firm of Chartered Accountants and Chartered Tax Advisors based in south east Hampshire. Trading since 1992, we have built a reputation for client care and ‘out of the box’ solutions.

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