Exit stage right: 4 steps every entrepreneur considering a business sale should take

Whilst each entrepreneurial journey is unique, there are certain characteristics that entrepreneurs share. Chief among them are vision and hard work, alongside courage in the face of risky, but potentially rewarding, business opportunities. If the timing is right, their original idea can become not just a successful business, but also culminate in a life-changing financial windfall.

We know from our most recent Entrepreneurs Index that the number of entrepreneurs reaching the exit, wealth creation phase of their journey is on the up; in the 12 months to June 2014, the number of partial or full sales of companies resulting in at least £0.2m of individual wealth creation increased by 8.2%. So what are the most important things for an entrepreneur to think about when planning the sale of their company?

Fail to prepare, prepare to fail

If you are an entrepreneur, the decisions you make – or ignore/are unaware of – before the sale, can have a significant impact on your post-sale choices. Giving some thought to the advisory team, ‘dressing the business for sale’, communicating with staff and securing important tax reliefs, will make the achievement of your desired post-sale outcome far more likely.

The first thing to think about is taking advice. Business owners know their business better than anyone else. Nevertheless, ahead of a sale negotiation, a wider perspective may be required. The fewer concerns that arise with the accounts, record keeping, contracts or business structure, the less likely that offer will be reduced, made more dependent on ongoing results or fall apart all together. The rationale is similar to the seller of a house asking a brave friend to come and poke around their house before it’s put on the market. With a fresh set of eyes, they are likely to point out all the little idiosyncrasies you may not have seen.

Next, it is worth thinking about motivation. Something as simple as writing down the five main reasons for selling/not selling, and then likewise considering what is driving a potential buyer, can help focus the mind on what the ‘deal breakers’ might be on either side, and help the team negotiate more effectively. Desired value is also worth considering before addressing the structure of the deal.

Don’t forget about the other people

Concerns about what the sale might mean for your staff should be an important part of the pre-sale phase. You may find it helpful to think about the pre-sale period in terms of how it might affect your ‘trusted lieutenants’, core staff and other staff members. This can provide a platform for considering, and discussing with the advisory team, the potential staff-related issues and tasks, before the deal is upon you. It should also flush out what promises, if any, have been made to staff, explicitly or implicitly. The aim of any such exercise is to treat staff fairly, without losing sight of your other priorities as a business owner.

It’s also important to ensure you have provided for your family should something go wrong in the pre-exit phase – have you considered securing the equity in the business should something happen to you while the sale is going through? Are personal assets like the family home and ‘rainy day’ cash secure and accessible? Have you reviewed your pension arrangements to ensure they are not ‘mixed in’ with business assets? All of these things will be essential to consider so that you or your family do not encounter any nasty surprises.

From pre-exit to post-exit

Few entrepreneurs have time during pre-exit to construct a detailed personal financial plan, but what is possible is to start to sketch out some high-level priorities and thoughts, to make sure the bigger opportunities that will be lost once the ink is dry on the deal are not missed. There are a few questions to ask yourself to begin that process, such as: What do you plan to do, post-sale – am I a ‘serial entrepreneur’ or is this a one-off business? When I have more time, is philanthropy likely to feature more in my financial planning? Do I want to give my children and/or grandchildren significant wealth? If so, when? How?

Enjoy your journey

At Barclays Wealth and Investment Management we have recently released a dedicated guide to pre-exit planning to help our business owner clients navigate this sometimes tricky time. Be under no illusions about how busy your life will be, not only during the 12 months before the deal is done, but the 12 months following it. Either side of the sale is a period of considerable adjustment, but as long as you ‘have a plan’ it can be an enjoyable and exciting time. It marks the end of one journey, and the beginning of another, one likely to be less intense but no less rewarding.

Image: Exit strategy via Shutterstock