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Knowing When to Exit Your Business: A Strategic Guide for Owner-Managed Businesses

Written by Joe Hinton on .

White EXIT sign

As a business owner, you've poured your heart, soul, and countless hours into building and managing your business. However, there comes a time in every owner's journey when the question of exiting the business arises. Whether you're considering retirement, a new venture, or simply passing the torch on, timing is crucial. In this article, we'll explore key considerations for owners to determine when it's the right time to exit and the importance of effectively planning for it.

Your Personal Goals

Before evaluating the business itself, take a moment to reflect on yourself and your readiness for an exit. It’s a nice thought, selling up and retiring, but what would you actually do? Are you looking to travel, start a new venture, or simply take a step back? Assessing what you would do with all that time and ensuring your financial readiness is fundamental to making an informed decision about when to exit.

Business Performance

Analyse the current performance and trajectory of your business. If your business is experiencing consistent growth, strong profitability, and a stable market position, it might be an opportune time to consider an exit. Buyers will be attracted to businesses with a proven track record and promising future prospects – after all, that’s where they will get their return back from.

Market Conditions

Keep a close eye on market trends and industry conditions. If your business operates in a thriving market with high demand, it may be a favourable time to sell. Conversely, if the market is saturated or facing uncertainties, waiting for a more stable period might be prudent.

Preparation for Succession

Succession planning is critical for a smooth transition. Evaluate whether you have a capable leadership team in place or if key employees are ready to take on more significant roles. A well-prepared succession plan ensures the continuity of the business even after your departure.

Financial Position

Assess the financial health of your business. Buyers will scrutinise in detail the financials, so it's crucial to have a solid financial foundation. This includes manageable debt levels, healthy cash flow and of course good profitability.

Industry Trends and Disruptions

Consider the long-term trends and potential disruptions in your industry. If your business is well-positioned to adapt and thrive amidst changes, it might be an excellent time to exit on a high note. On the other hand, if your industry is facing significant disruptions, carefully strategise your exit to mitigate risks.

Lifestyle Considerations

Reflect on your desired lifestyle post-exit. Do you want to remain involved in the business in a reduced capacity, or are you ready for a complete break? If so, what will you do with your time? Understanding your preferred level of involvement and what you want to do post sale will guide your exit strategy.

External Factors

One such factor worth considering is the likelihood of a change of Government in the UK and the economic ramifications of that. An obvious one may be potential changes to Capital Gains Tax that may be brought in which could affect you. For example, currently, the Business Asset Disposal Relief scheme means that you could pay just 10% tax on the first £1 million when your business is sold. If that were removed or reduced, it would be very costly to business owners.

Type of Sale

A high percentage of businesses are sold to trade buyers but not necessarily competitors. It could be a company operating in a similar market that would benefit from marketing your product or service to its existing client base. Alternatively, it may be a buyer who wants to get a foothold into your market or maybe in the UK.

Could You Consider a Management Buyout? Would Some of Your Senior Team Be Prepared to Step up and Take the Reins?

Another sale route growing in popularity is an ‘Employee Ownership Trust’ which is worth mentioning in some detail. An Employee Ownership Trust (EOT) is a legal structure that allows employees to collectively own a significant stake in the company they work for. It was introduced to encourage broader employee ownership and engagement in businesses. In an EOT, a trust is established, and the shares of the company are transferred to this trust on behalf of the employees.

The trust holds the shares on behalf of the employees, who become beneficial owners of the company. Trustees typically manage the trust, and employees may have a say in the governance of the trust. The idea behind an EOT is to promote a more inclusive and participatory workplace culture, aligning the interests of employees with the long-term success of the business.

Moreover, there are tax incentives associated with EOTs. Business owners selling a controlling interest to an EOT may be eligible for Capital Gains Tax relief, providing an incentive for owners to transition the ownership to their employees. This structure aims to secure the future of the business, enhance employee motivation and loyalty, and potentially contribute to its long-term success.

Conclusion

Deciding when to exit your owner-managed business is a complex and personal decision. By considering all of the above you can make a well-informed decision that aligns with your aspirations. Exiting at the right time ensures a smoother transition for both you and the future of your business.

Do You Need More Advice on Selling Your Business?

Here at UKBM, we pride ourselves in connecting you with the right business mentors for your needs, to help make the most informed decisions for your business. We will discuss with you what you want to achieve, and help you prepare a strategic exit plan. Get in touch today to start planning your future.

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