Business Matters – Issue 43

Exiting on your terms

First things first! A business sale is just one way out. Understanding the variety of exit strategies available to you is essential for a smooth transition.

• Trade sale – Sell your shares or assets to another owner/company in your industry.
• Partial exit – Don’t want to give it all away just yet? Step back a bit, but still stay involved.
• Management buy-out – Let your current managers buy and run the business.
• Employee ownership trust – Sell to your team through a tax-friendly set-up.
• Don’t sell at all – Appoint a Managing Director or CEO to run the day-to-day, while you retain ownership and enjoy the dividends.
• Liquidation – If a sale doesn’t work out, a Members’ Voluntary Liquidation (MVL) might be your route.

Preparation is key

Whichever exit route you go down, preparing a company for the transition is crucial to maximising value and minimising risks that could jeopardise a successful exit.

While getting the sale over the line might seem like the most pressing concern, it’s essential to plan ahead. It can take years to prepare a business for sale but those owners that prepare well will not only optimise value but also achieve better deal structures. We recommend starting at least five years before your ideal exit date.

To help you create a timeline, we’ve put together seven ways to prepare.

1. Lock in your personal and business goals

There are three basic considerations to ensure your financial future when planning an exit:

1. Personal finance plans – Consider the ‘pot of money’ needed to strengthen your financial future and fund retirement.
2. A business plan – Spell out how the value of the business will be built.
3. How that value will be turned into cash – i.e. how and to whom the business will be sold.

Clarifying your objectives helps you define what you want from the sale (e.g. financial gain, company legacy), enabling you to structure the deal to align with those goals.

Ian says:

“By determining how much money you need for your retirement lifestyle, this will help set a target ‘exit value’ for your business – taking into account the current tax regime and prevailing financial conditions as a base case scenario. Then you can build a timeline with those key milestones of what needs to happen when, and go from there.”

Nusrat agrees:

“Having a clear idea about what your non-negotiables are means that you can quickly filter out buyers/timescales not aligned with what you’re looking for.”

2. Streamline the due diligence process

Sales often stall due to missing information or unaddressed concerns. Organising your documents, contracts and financial records in advance helps prevent any delays.

Getting everything in order early doesn’t just build buyer trust, but can save you money in professional fees too. Indeed, bad housekeeping is one of the most common legal pitfalls seen during the due diligence stage, says Nusrat.

She continues:

“As solicitors ‘coming in cold’ to a deal, probably 99 times out of 100 we find an issue regarding the documents pertaining to the company. And it’s an immediate flag for us – immediate extra cost and time. Not to mention that it can scare off potential buyers.

“Statutory registers are a prime example. They’re a requirement under the Companies Act, but I often find that smaller companies don’t have them – or they’re collecting dust somewhere! The owners are so busy running the company, and don’t have the admin resources that huge corporates do. But whether it’s a sale for £50,000 or £5 million, you still have to broadly follow the same processes. The same rules are applicable.”

Nusrat also highlights missing shareholder minutes, supplier contracts, supporting documents for employees, share transfer evidence, intellectual property details or even mismatched details with Companies House as common issues.

3. Attract qualified buyers

When a business has well-documented financial and operational records, it demonstrates discipline and transparency. Buyers crave this certainty, and a prepared business makes it easier to attract high-quality parties willing to pay a premium for a business primed for success.

Nusrat continues:

“Having well-prepared accounts and robust legal documentation is so much more attractive and lower risk for a potential buyer. It shows everybody in the company knows what’s going on. There are integrated systems and documented contracts – not just where something’s been done on a handshake!”

There are other things your business should be able to demonstrate if you want to achieve a good sale price. Things like having a good spread of loyal customers or long-term client relationships, a strong financial profile, evidence of good growth and future potential are factors that are likely to appeal to a potential buyer.

4. Optimise tax strategies

Structuring an exit strategically can minimise tax consequences, benefiting you financially. Making full use of reliefs such as Business Asset Disposal Relief (BADR) and Business Relief can reduce the tax owed on sale. But planning shouldn’t end there, consider the income you’ll need post sale to maintain your lifestyle, and factor in current and future taxes like Income Tax, Capital Gains Tax, and Inheritance Tax. With recent Budget changes including rises in minimum wage, National Insurance, and Capital Gains Tax, many owners are reassessing their plans.

Samantha explains:

“Now more than ever, business owners need to take a proactive approach to their exit strategy. Making use of the available tax reliefs and thinking ahead to how your post-sale income will support your lifestyle, while factoring in both current and future tax liabilities, is essential. With the right advice, you can exit your business in a way that protects and enhances your financial well-being.”

Against a complicated backdrop, engaging with a financial adviser is a vital step. Understanding the full tax implications of your business exit can help you secure the best possible outcome for your future – and your family’s.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

5. Maximise business valuation

Potential buyers closely examine financials. Addressing any inefficiencies and resolving outstanding debts and clarifying asset ownership makes the business more attractive, as buyers want to invest in a company without unexpected financial burdens.

Another legal strategy business owners can implement early to maximise business value ahead of an exit is securing intellectual property, like patents, trademarks, copyrights or proprietary tech. These unique assets are tough to replicate and give buyers confidence in long-term market advantage and strong return potential.

6. Ensure continuity for your team and operations

Creating guides on operations, processes, customer relationships and employee roles makes the transition smoother for the new owners and reduces disruptions. What’s more, if you own an SME and are looking to sell with a clean break, think about how closely your name, reputation and role are woven into your business.

Nusrat gives an example:

“You could be so heavily involved and don’t like to delegate. It’s a risk for buyers, as they can’t always see the processes or structures that they could seamlessly inherit because it’s so tightly wound with you and your personal branding.”

What’s more, a solid succession plan ensures that essential staff are motivated to stay through the sale, preserving the company’s value and knowledge base.

If a sale isn’t viable, you might need to look at liquidation. Scaling back or closing a business is challenging, but careful planning and consideration of the legal requirements can protect you and your employees. Ensure you understand employees’ rights in insolvency, such as around redundancy, and the Protection of Employment (TUPE) rules if selling a going concern.

Ian adds:

“Closing a business is never an easy decision, but it doesn’t have to mean chaos or uncertainty. With the right planning, you can meet your legal obligations and support your employees. Understanding your responsibilities ensures that you exit with clarity and integrity, even in difficult circumstances.”

7. Take a cross-disciplinary approach

Preparing a company for sale is an investment in its future value. Using trusted advisors – financial, legal and accountancy – can not only help ensure the deal concludes successfully but it also enables you to command a higher price. It will also secure a smooth transition for you and your employees, while protecting both your interests and the business itself.

Nusrat concludes:

“Engaging a cross-disciplinary team is absolutely essential! People are often nervous about spending money because they can’t see a material value, but it’s an investment that can cut down the costs down the road. By engaging with a solicitor early, it helps address compliance issues, reducing legal risks in the transaction. Your advisers will look at the detail to the nth degree. Nothing will be left unturned.”

Samantha summarises:

“I always say that adding a good financial adviser, solicitor and accountant to your power team can bring a level of tailored specialist support you simply can’t get from anyone else in your support network. This really comes into its own during business exit planning. It’s a collaborative, long-term relationship – as financial advisers, we’re there to support you in making your own choices.”

What’s your exit strategy?

Selling your business is one of the biggest decisions you’ll ever have to make, and it’s important to plan your exit strategy carefully to gain control of your financial future. With experts at your side, you can benefit from personalised advice and support that can help you prepare for a successful exit.

Whatever life after an exit holds for you, you can look forward to the future, with Wellesley.

If anything here has struck a chord, get in touch with us today!

Contributors

Nusrat Qureishi, Associate Director, Head of Corporate and Commercial Law Department at stevensdrake solicitors

Nusrat heads up the Corporate and Commercial team at stevensdrake. She has more than 20 years’ experience, with particular expertise in the sale and purchase of businesses and companies, as well as the establishment of partnerships and other joint ventures.

Ian Howard, Chartered Financial Planner at Wellesley

Ian has been with Wellesley since 2006 and in the industry since 1990. People often ask Ian what he does; he says, simply: “I help people.” With such a myriad of choices out there, Ian always asks clients what it is they do or don’t want to do, and takes it from there.

Samantha Kaye, Chartered Financial Planner at Wellesley

Samantha joined Wellesley in 2019 having spent 20 years working in a pensions, legal and technical environment, providing detailed assistance to a variety of financial advice firms. Her passion lies in providing people with bespoke advice tailored to their individual requirements.