PLAN FOR THE
EXIT JOURNEY
Selling your business, or seeking strategic investment partner, is one of the most important milestones a business owner will face. The ability to maximise the opportunity will depend on how well prepared you are, and how well your business is presented to potential buyers and investors.
Establish appropriate and consistent accounting policies
Potential buyers will want to know what your business’ sustainable earnings are and be confident that your balance sheet values your assets fairly because these will often be used to value your business as a whole.
To satisfy buyers that your earnings reporting and balance sheet values are accurate, you must have accounting policies that are well considered, robust, and consistent with industry standards or benchmarks. This can be achieved with a thorough audit by an internationally recognised firm, as it will also give early warning of issues that need to be addressed.
Embed a governance framework and control environment that is fit for purpose
Buyers will be looking for evidence that the risks inherent in the business and its operating model are well understood, and that steps have been taken to mitigate them.
There are practical measures you can take to provide buyers with assurance that the control environment is managed, so that it remains fit for purpose, for example:
- A well-documented risk assessment, with evidence that it’s regularly revisited and refreshed.
- Evidence of controls in place and tested to prove they effectively mitigate risk.
- Evidence of the business’ compliance with risk, governance and statutory compliance obligations under (for example) the Bribery Act 2010 and the Criminal Finances Act 2017.
Ensure compliance with tax laws
Buyers will often try to chip at the price on offer for your business, using leverage such as past tax compliance failures or a lack of evidence to support past tax positions. Actively ensuring your business is tax due diligence-proof can protect the value of your business.
You can protect the value of your business with documentary evidence of:
- Material tax judgments.
- Controls, systems and policies that enable accurate and efficient tax reporting.
- Engaging strong technical tax advisers in areas where your business does not have the in-house expertise available.
Plan for an optimal exit
Selling your business in whole or in part is a significant lifetime liquidity event. Given the investment and years of effort you put into your business, it is important to optimise the post-tax returns. There are two key aspects to consider:
- Ensure that ownership structures, shareholdings and share rights are in place to permit disposal with the benefit of valuable capital gains reliefs, such as Business Asset Disposal Relief (BADR) or investor’s relief. Identifying issues with your qualifying BADR status early will give you time to correct the position – discovering a problem late in the process can be costly.
- After the transaction, your personal balance sheet will show a very different picture: most of your wealth will be in cash rather than company shares. Cash does not qualify for valuable inheritance tax reliefs, as shares in your company are likely to, so it is important to consider matters such as:
- Personal wealth planning.
- Reinvesting in other business ventures.
- Your family wealth, succession and distribution plans.
Specialist tax advice is essential.
Consider the potential buyer pool
An understanding of the potential buyer or investor pool will allow you to tailor your governance framework and external communications. Private equity and institutional investors, for example, are not only interested in business profitability, but also in the business’ environmental, social, and governance (ESG) position and the sustainability of its operations. Clearly communicating your business’ stance on these issues can add value to your proposition.