Exit Planning

7th October 2016

If you own and run a business that you do not intend to pass on to the ‘next generation’ or liquidate, then, one day, you will have to exit this business. Exit planning is the process by which you plan and prepare for this exit. Hi-tech businesses typically include a strategy on exit as part of their business plan. Good planning should increase your chances of obtaining a sale and on the best terms.

We have set up a specialist corporate finance team to offer bespoke services in exit planning, including assisting with:

  • Timing the exit:
    • To fit in with your personal goals.
    • To coincide with when the business results are strong and growing – showing a record (ideally, 3 years) of growing maintainable earnings and profits. Having a three-year business plan in place which includes strong revenue and profit goals, along with corresponding plans to drive and support growth in areas of sales and marketing, product/service delivery and finance. This plan should estimate the size of the market opportunity and have forecasts for growth based on what extra resources or expertise a purchaser could bring to the business.
    • To match market conditions which are fertile for acquisitions.
  • Exit tax planning , including, where relevant:
    • To ensure (consider advance clearance from HMRC ?) entitlement to Substantial Shareholdings Relief, by creating a group structure.
    • To ensure entitlement to Enterprise Investment Scheme CGT exit tax relief.
    • To ensure entitlement to Entrepreneurs Relief (10% CGT rate).
    • To ensure avoidance of possible De-grouping charges.
  • Deciding whether you are selling the business as a self contained company (ie shares) or just the individual business assets (including goodwill).
  • Creating a ‘desirable’ business for a purchaser:
    • Diversifying your customer base, so that no more than 15% of revenue is concentrated with your largest customer.
    • Creating a cash flow positive business model, where customers purchase your product or service more than once per year and pay up-front or as a monthly subscription.
    • De-personalise the business model, so that you do not need to customize products, services or methodologies for individual customers.
    • Creating a business model where you product or service is easily teachable to your staff.
    • Have a clear and unique value proposition.
    • Supplying a product or service which is highly valued by your customers/clients.
    • Once you specialise in something, you can then hire specialist staff.
    • Make something unique about your process, so that you ‘own’ it when pitching.
    • Have best practice contracts/documents in place (employment, sales, leases, statutory meetings).
    • Have a sales team of at least two, to create natural internal competition (these should be people who are good at selling products, not services).
    • Having a scalable business.
    • Shifting your focus to maximising maintainable adjusted EBITDA profit, rather than optimising cash flow. Operationally, this may influence decisions on:
      • Assets: ownership v leasing
      • Staffing projects: consultants v employees
    • Creating a culture which minimises staff turnover.
    • Have a risk register, with considered mitigation plans.
    • Do you have a short and medium term documented business plan (detailing opportunities for growth organically, through margin improvement and through business acquisition)?
  • Considering what cash you want your balance sheet to disclose, to help with pricing negotiations for a no-cash no-debt valuation (pre year end dividends, directors loan repayments or pension contributions could be made)..
  • Structuring the business to operate without you:
    • Establishing strong middle management. Motivate and tie them in with a long-term incentive plan (eg options). Only give away equity now as a last resort. Delegate responsibilities to this management level.
    • Creating financial controls and documented systems/methodologies for post sale, when you are no longer involved. Setting up this structure will involve ‘systemising’ all of the aspects of managing the business, so that, one by one, they do not require your input and creating a long term financial incentive for key individuals to stay with the company.
    • Creating a ‘prospects channel’ where no more than 10% of new revenue is a direct result of your personal sales efforts.
    • The more the business can operate without you, the less likely that part of the sale consideration will be an earn out or deferred consideration.
  • Control over the occurrence and timing of discretionary spends (to maximise EBITDA profits that will be used in valution)
  • ‘Tidy up’ the business:
    • Formalising existing customer, employment and other trading relationships.
    • Ensure all legal and tax compliance is up to date.
    • Eliminate potential deal-breakers (eg. ongoing litigation).
    • Cessation or splitting of loss making activities.
    • Remove ‘personal’ and ‘mixed’ transactions and assets from the business.
    • Tidy up property occupation, ownerships, etc.
    • Ensure most efficient/saleable structure.
    • As most purchasers will try and structure the deal so as to fund the purchase price out of future ‘target’ profits, the balance sheet should be handed over in a condition that will be conducive to such finance raising.
  • Optimising the ‘Picture’ presented of you on the public record:
    • Submitting full (instead of abbreviated/filleted) accounts, disclosing strong financials, at Companies House, in a timely manner.
    • Improving your business credit rating.
    • Improving the information that can be found on you through simple desktop research (your website, SEO, blogs, etc)
    • Ensuring that your accounts are prepared with accounting policies that are consistent with industry norms.
    • Be visible on other public record mediums, for positive reasons.
  • Preparing a ‘sale pack’, ready for purchaser due diligence.
  • Find an advisor for whom you you will be neither their largest nor their smallest client. Make sure they know your industry.
  • Strategies for attracting approaches from potential purchasers (try and create competition into this process).
  • Creating the sale team and documentation and preparing for a smooth due
    diligence process.

The earlier the grooming process commences, the better and the more robust the company will appear under future due diligence scrutiny. Instruct us to undertake this corporate finance work and you can rest assured that all of the multi facets of this complex area will be taken care of, to your best advantage. Experience, contacts and inside knowledge are the pre-requisites of good corporate finance advice.

Client Review

"Whiting & Partners guided us in setting up the day to day accounting systems and have since looked after the annual accounts and tax matters. We find them professional, practical and accessible".



 
Other items in Blogs
 
Bethan Hassey
24th September 2021 SSP Rebate Scheme closes 30 September 2021!

Normal Statutory Sick Pay (SSP) can be paid to your employees from the fourth day they are absent from work if they meet the following criteria: They are classed as an employee and have done some work for you Earn an average of at least £120 per week Have been ill for at least 4…

Read More »

Stephen Malkin
23rd September 2021 BREAKING NEWS – MTD Delay

Making tax digital for income tax is being delayed, originally due to come in from 6 April 2023 this has now been delayed until 6 April 2024 for individuals and landlords.  General partnerships have been delayed further until 6 April 2025.   The government has said  that it recognises the challenges faced by many UK…

Read More »

Ian Piper
22nd September 2021 Net Zero Carbon: Does your business now need a plan?

From 1 October 2021, to be eligible to apply for public sector contracts over £5m pa, suppliers must have Net Zero Carbon Reduction Plans in place. These will be required to demonstrate a commitment to achieving Net Zero by 2050 in the UK:  Taking Account of Carbon Reduction Plans in the Procurement of Major Government…

Read More »

Steven Denton
15th September 2021 The Health & Social Care Levy

On the face of things perhaps no big deal, but in a society that has traditionally seen very small changes to the tax & NI system a 10% rise in one fell swoop is not one to be casually shrugged off.   Assuming current NI banding remains unchanged in the 2022-23 tax year, the budget…

Read More »

Millie Hunt
15th September 2021 Changes to the leisure & hospitality VAT rate

To encourage spending in the leisure & tourism sector, the VAT rate for certain supplies was cut from 20% to 5% in July 2020. From 1 October 2021, the VAT rate will rise again to 12.5% and this rate will be in place until 31 March 2022.   If your business operates in the leisure…

Read More »

Luke Bacon
14th September 2021 End of SDLT Holiday

Back in July 2020, The Government launched the so-called Stamp Duty Holiday for residential properties, as part of a strategy to give the UK property market a much-needed boost during the Covid 19 pandemic. Stamp Duty Land Tax (SDLT) is payable on purchases of UK property. The amount of consideration which is exempt from SDLT…

Read More »