UK Corporate Tax Planning

Exit Strategy Planning

The undertaking of formal and systematic planning for an optimal exit from your business is commonly known as exit strategy planning. Business owners who do not consider their strategy until the actual moment of exit may find that it has become difficult to make the right decisions.

The benefit of proper exit planning is that you’re able to capture the largest amount of capital from your company while minimising any fuss. Conversely, any lack of planning can easily detract value from your exit, create obstacles, or even prevent the exit altogether.

Choosing your Exit Strategy

A wide variety of exit strategies are available to you. Those who are fully aware of their strategy will find their business decisions informed by these plans months or even years in advance.

A variety of possible exit strategies are listed below:

  • Using an IPO to go public
  • Using a reverse merger to go public
  • A larger entity acquiring your company
  • Selling directly to any given buyer
  • Offering licenses or franchises for your business
  • A merger where control is seceded
  • Management agree to buyout the company

It is best to select your exit strategy as early as possible. Your business decisions will then naturally be informed by your planning.

In the event that you were to choose the IPO option, for example, it may be best to focus on improving certain elements of your company’s financial health, such as maximising equity returns or adjusting your levels of debt. Alternatively, if an acquisition appears to be the way forward, you will want to present your company so that it offers an attractive scenario for the acquirer.

Each approach clearly demands different preparation.

Successfully negotiating barriers to an exit

It is often necessary to overcome unexpected barriers in order to make a successful exit.

As an example, even though you may have had ten successful years running a company, if your financials have never been audited then you may well encounter difficulties in tackling a flotation or acquisition. This is because for anyone to invest large sums of money in your company, a reputable firm would have had to have given your financials a clean bill of health.

If indeed you are envisaging an exit along these lines, then you will be ready to organise your financial statements well in advance of actual negotiations with potential buyers.

A further barrier that occurs relatively frequently is the absence of clarity in contracts with partners, co-owners and co-principals. What would occur should you step down? Will you receive ongoing profits if you retain your shares? Will they receive first option on the purchase of your shares, before any offering to investors on the wider market? If they wish to sell their shares at the same time, might this not risk a devalued price for the shares if the market cannot absorb this larger volume of shares?

Exit planning by a professional strategist will allow you to foresee all possible difficulties and make appropriate plans to deal with them.

Realising the maximum value of your business

The years preceding an exit offer many opportunities for maximising value in a business. As previously mentioned, thorough plans allow you to maximise the amount you take with you into retirement.

Methods for valuing businesses vary according to the type of company you are dealing with. You might, for example, value an internet website based on net profit, with an expectation of paying a price between two to four times the yearly profits. In contrast, if you were analysing the sale of a television station, you would be obliged to consider a variety of revenue streams.

Understanding the way in which a business will be valued offers you the opportunity to optimise certain sets of numbers in the years immediately preceding your exit. In terms of the examples mentioned above, a website business might prompt you to eliminate those revenue streams that offer minimal gain in favour of concentrating on simply increasing profit. Alternatively, with a television station, you may choose to maximise revenue without being overly concerned as to how much goes into the bank each year.

Exit value can also be optimised by cultivating potential acquirers at an early stage. For example, with three potential suitors, it may well pay dividends to begin cultivating these relationships up to 2 years in advance, instead of waiting until the very moment when you have to sell. Good exit strategy planning allows you to identify your exit strategy along with possible buyers, and enables you to make tangible moves towards cultivating a positive rapport with any such parties

Our usual words of advice apply: Changing the environment in which your assets are held changes the way in which they are treated for taxation‚ and this includes any taxes liable on exiting your company.

The most suitable Trust for Exit Planning is the Corporate or Asset Trust. If you would like further information, please contact us using the form in the sidebar on the right hand side, or simply call us directly on 0845 388 9002.