Exiting a business

Exit preparation tips

Planning how you exit your business is just as important as how you start it. The goal is to maximise the value of your company before converting it to cash, and to minimise the amount of time consumed.

Top tips for preparing a business for exit

• Sever the emotional connection. You should see your business as an asset that has commercial value, rather than a result of many years of effort.
• Clean up the balance sheet. You don’t want to have personal assets and substantial contingent liabilities (such as employee long service leave, annual leave, etc.) sitting on your balance sheet when you are exiting.
• Put a detailed plan together. If you fail to plan, you plan to fail, particularly when it comes to using sale proceeds to fund your retirement.
• Enlist the help of external specialists. You may see spending money on accountants, lawyers or corporate advisors as excessive, but it is the best investment you can make to maximise your result.
• Take your time. Allow between 12 and 24 months for preparation before exiting.
• Move out of the business. As the managing director of the business, start dedicating a significant proportion of your working effort to working on the strategic aspects of the business.
• Reduce over-reliance on specific clients. If more than 15% of your revenue is sourced from one client, there is an over-reliance and inherent risk for a prospective purchaser.
• Diversify your income streams. The inherent risk profile of a business decreases if it generates reasonable percentages of its revenue from diverse and annuity income sources.
• Minimise reliance on business owner(s) for revenue generation. Most owners of SME’s are in revenue-generating roles. If you plan to retire from the business this situation must be reversed, otherwise there is too much risk for a prospective buyer.
• Systematise the business. Document or automate every policy, procedure and process in the business to support the attainment of a state of self-sufficiency. This serves to minimise the reliance on the business owner, but also increases the pool of prospective buyers to include investors with no industry experience.
• Check that your business is housed within the most appropriate legal structure. Consult your Accountant both in terms of capital gains tax and family wealth planning, to ensure the capital proceeds from the sale attract the minimum capital gains tax and also end up in the most appropriate structure for the future.

Important

See your business as an asset that has commercial value, rather than a result of many years of effort.