Exit Planning: When should you start planning your exit?

There will come a day when every owner exits the business they have spent so much time and effort building. It’s not a case of IF but WHEN; so, when should you start planning your exit in order to extract the maximum value?

Whilst there is no exact ‘right’ answer to this question, there is certainly a ‘wrong’ one.

Let’s start by talking about the ‘wrong’ answer as it is a trap that too many owners fall into. The ‘wrong’ answer is to leave your exit planning until the last minute, once you decide you have had enough and want to leave your business as quickly as possible.

This can happen for many reasons. Maybe it’s because you have reached the point where the frustrations of working with insurers become over whelming, or the burden of meeting and maintaining compliance and regulatory requirements becomes too much, or health issues arise, or someone makes a speculative offer, or you just simply you reach the point in your life where you (and your partner!) want to spend time doing other things.

One problem with failing to pre-plan your exit is that may impact on your personal plans, as you may need to continue working for a period (perhaps up to two years) after you have sold your business. By failing to plan, the prospect of an immediate retirement, and being able to disappear over the horizon with your saddlebags full of gold doubloons, is very unlikely!

There are other risks and issues to understand when you decide to exit with little or no prior planning.

It may be that your business is not in the best shape for a sale, which can have a detrimental effect on the value you can achieve. For example, compliance may not be quite where it should at the time you go to market and this can impact negatively on the value of your business to a potential acquirer.

It is also likely that you have not maximised the profitability of your business or your income in the years leading up to your exit. This means you will not have made as much profit (and hence personal earnings) as you could have done and your income may not be as high as it could have been.

Apart from the loss to the owner of potential earnings, both these aspects may have a negative impact on the value you achieve for your business.

In my many years’ experience of working with independent brokers, many small and medium size businesses could improve their profits by at least 30% and many by more than 50% by making a few tweaks to the way the business is run.

Good acquirers will see these opportunities and rub their hands with glee – their offer to the owners will be based on the business as it is now and not as it will be after they have completed the purchase: your missed opportunity is their windfall!

So, please don’t wait until the day comes when you have had enough. Start thinking and taking some action well before you finally decide to hang up your boots.

If you think you may want to stop working or extract the value at a particular age, plan backwards from that date. Consider that you may have to work for up to two years after the sale, that it may take six months from marketing the business to sale, and finally, consider allowing time to ‘get fit’.

RWA Solutions can help you with your thinking and preparation. We can even complete a Pre-Exit Health Check to get you ‘fit’ for sale….and probably make you more money as a result.

Andrew Linnell
Business Growth & Strategy Development
RWA Solutions

E: andrew.linnell@rwagroup.co.uk

About the author

Andrew worked at RWA until April 2018, helping organisations and individual with business development, growth and strategy formation as well as mergers and acquisitions. Andrew has held senior strategic and operational roles in a number of financial service businesses in the UK and has been providing specialist and unique consultancy services to the independent broker market for over 10 years. 

Get RWA Insight In Your Inbox

Regular business news and commentary delivered direct to your inbox each week. Sign up here