Should I sell my business and retire?

It’s not a case of if, but when. Everyone who runs a business needs to have exit strategies in place – preferably several alternative options. Here we cover the four most popular exit strategies for businesses.

Sooner or later you will leave your business, since even if you never retire you won’t live forever. But you may have many reasons other than retirement, such as the wish to try something different, extract the full value of your business, or pass over the helm to a new owner or family member. Equally, there may be other stakeholders in your business who wish to exit for their own reasons. That’s why planning in advance is essential, so that you can leave on your own terms.

Why is it important to have an exit plan?

A planned exit will always be preferable to one that is forced on you by circumstances. Planning lets you choose the means by which you leave, and also to groom the business for that specific strategy. This helps ensure the smoothest possible transition while releasing maximum value from the business. Just as importantly, it is the best way to safeguard the health of the business into which you have put so much time and effort. You don’t want to jeopardise its future with an unplanned exit.

How could I exit my business?

Your basic options for exiting a business are:

  • Sell the business
  • Pass it on to a family member
  • A management takeover (MBO)
  • Extract wealth tax efficiently & Wind down.

First decide what you’ll want to achieve from your exit. Do you just want to make as much money as possible, or are you also keen to see the business go from strength to strength? Do you hope to pass it on to family, or would you not mind if it ceased to exist? All of these considerations should influence your choice.

Should I sell my business?

If your primary motivation is to make a profit, retire, or invest in a new venture, selling your business may be a good route. You need to decide what exactly is for sale: the shares in the business, or the trade and assets.

Then you need to find the right buyer. We can help you with this and avoid the problems associated with using a business broker.  We can work with you to maximise the value of your business in the run-up to the sale.  You will need other assistance, our deal team can take care of these for you,  by preparing your buyer’s due diligence, you’ll also need legal advice during the contractual negotiations. Selling may take anything up to one to three years, so plan well in advance.

Bear in mind that when you sell shares in the company (which you will do as a part of selling up) you will have to pay capital gains tax (CGT) on the profits you’ve made. However, you may be able to halve your tax bill by claiming entrepreneur’s relief (now called – Business Asset Disposal Relief)

Can I keep it in the family?

Passing a business onto one or more of your children is a fine tradition that many families manage successfully. However, don’t let the appeal of it cloud your judgement. When you have someone in mind, ask yourself if they really are the right person for the job – not just whether they ‘deserve’ it.

You may want to extract some value from your business in the process of passing it on, so talk to your us about the most tax-efficient ways to do this.

A management takeover

There are three common ways for the management to purchase the business. In a management buy-out (MBO), the business is bought by an existing management team. In a management buy-in (MBI), a new external team takes over, while in a ‘buy-in management buy-out’ (BIMBO), the business is bought by a combination of an existing team and an external manager.

Taking one of these routes is often the quickest, and most efficient way to exit your business, particularly if the team already knows the business well. However, in an MBI or BIMBO scenario it’s important to consider and mitigate any potential conflict between existing team members and a new external manager.

It’s essential to take our advice when approaching any management takeover, as there are many pitfalls and commitments at an early stage.

Should I wind the business down but take the cash out?

We can help you extract the cash your business has built up in the bank using the most tax efficient HMRC approved ways.  The first place to start when considering this option is to ask yourself “what is my number?” ie how much do you think you need to extract to live well beyond any involvement in the business.  We have specialist methods to evaluate, plan and advise you on this number, which will often enlighten business owners on a target amount and target timescale.

Taxation, employees, pensions and property all need to be considered when winding a business down.

How can I get the best value?

Part of your exit plan should focus on how to boost the value of the business prior to exit, and how you can extract maximum value from the exit itself. A key part of this is deciding when to exit – so keep an eye on market trends, the financial climate and the availability of potential buyers or successors.

To value your business, your advisers will consider the history and future prospects of the business, the performance of other businesses in the sector, and recent sales. They will also pay close attention to cash flow, turnover, efficiency and profitability.

How do I get started?

It’s never too early to start thinking about your exit plan. To get started, consider what you might want to do next. Is it time for a new venture? Or time to retire?

A clearer idea of what your business is worth and what you want to do next can help to shape your plans for your business. Let’s start a conversation today.

Leave a Reply