Why you need to be thinking about your business exit strategy

Geoff_SteerTNAt some point succession planning is an issue for every business owner, yet many never actually consider it. Here, financial adviser Geoff Steer explains why all business owners need to be thinking about their exit strategy.

At some point succession planning is an issue for every business owner, yet many never actually consider it. Here, financial adviser Geoff Steer explains why all business owners need to be thinking about their exit strategy.

It’s amazing how many business owners have never seriously contemplated their succession plan or strategy. At some point it is an issue for every business and arguably, it is an issue that should be on the agenda from day one. Whether it is due to retirement, disability, death or simply having had enough, business owners need a plan how their business interest is going to transition to the remaining or new owners. Geoff_SteerLG

Planning an exit strategy is important for a number of reasons:

  1. Assuming the business has some value, and for many business owners it will be their largest asset, an ad hoc or unplanned decision to exit the business is unlikely to maximise that value.
  2. No planning may effectively take the decision out of the owner’s hands. For example, sickness, death, divorce or a partnership dispute may force the closure, wind up or fire sale of the business, with little chance of achieving optimum value if the business is not “sale ready”.
  3. For many business owners there is significant personal goodwill and often an emotional attachment to their business which may require an extended process to ensure an effective and financially rewarding transition.

Some of the issues which need to be addressed as part of the process and which can be incorporated into an effective succession plan include:

  • How the owner will plan his or her transition.
  • Ensuring the business has a strategic plan for growth and profit.
  • The personal circumstances of the owner and their asset and wealth protection
  • Who are the potential new owners – existing team members, other family members, trade sale or public listing? If it is family members there may be many additional considerations that will overlay the transition.
  • Taking into account any estate planning considerations.

Like any good plan it is important to start with the ultimate goal or objective in mind and to work back from there. Starting the process early will provide clarity and could well assist in the day to day decision making processes of the business. Maximising the value of any asset doesn’t just happen, it requires sound planning.

Geoff Steer is a Founding Partner of Matthews Steer Chartered Accountants.

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