When developing your exit strategy, there are a number of things that you will need to consider.
Download our entrepreneur’s guide to selling your business
Most entrepreneurs are likely to go through an exit process at some point during the life cycle of their business, so the time will come to put plans in place. But when should this begin?
“A business requires a great deal of effort in order to grow and become a success, so thinking too far ahead might compromise certain goals being reached,” says Simon Smales, a relationship manager at RBC Wealth Management in London. “At the same time, entrepreneurs need to put thought into what will happen both for the company and for them personally when they want to retire or release equity from their business, so having an end game in mind is always a good idea.”
What happens after you make the decision to sell depends on why you are selling. For example, are you planning to retire or start a new venture? Are you seeking a clean exit or do you intend to remain involved with the company while selling part or all of your stake?
You might have several reasons for selling your business, ranging from selling shares to raise money for much-needed investment to simply exiting so you can tackle a different challenge.
Whatever your reason, the process is complex and time-consuming. Much of what happens next will depend on your motivation for selling, whether you want to be involved with the business after the sale, and the timeframe you have in mind. All three of these factors will influence how you go about selling the company, so it’s good to have clarity from the outset.
One of the best ways to ensure a smooth and successful exit is to build your exit plan into your business plan well in advance of making a sale, Smales says. Given all of the moving parts associated with selling a business, it is crucial that everything is in place well in advance of any deal being signed.
To help you to formulate and execute this, identify professionals with relevant legal and financial experience – such as accountants and lawyers – as well as mergers and acquisitions specialists who have experience in your sector. They will help you to prepare the business for a sale by taking a deep look into the operations and balance sheet, contracts and even lease agreements. In addition, advisers will discuss the best options available given your reasons for exiting and, if appropriate introduce, you to credible buyers.
Most business owners prefer to appoint a different set of advisers to help them with the corporate transaction to those who manage their personal affairs.
“That doesn’t mean they can’t be from the same company,” says Katherine Waller, a relationship manager at RBC Wealth Management in London. “Typically, however, the business owner will want a degree of separation between the advisers. This is so the individual feels comfortable and confident they are having conversations about their personal wealth, separate to what the business is doing. Choosing the right advisers is key.”
It is important to make sure your professional advisers understand your values, objectives and timeframe for selling the business. With their help, you should consider any potential tax liabilities that may arise as a result of the sale and how to minimise them.
In order to do this, personal financial planning arrangements will need to align with your plans to sell the business. For example, think about how you hold shares in the company and who stands to realise value from the sale of these shares. Have potential inheritance tax and capital gains tax liabilities been considered? Do you have entrepreneurs’ relief you can utilise? Will the transaction take place in two parts?
“What you don’t want to do is have a liquidity event from selling your business having not spoken to your wealth manager about wealth structuring for you and your family to ensure that everything is in order. It’s all about getting your ducks in a row early,” Waller says.
Ultimately, the more preparation that takes place in advance of a sale, the better the outcome. This period of taking stock of a business can span multiple years and include several deals that are turned down.
“Among our clients who have sold either part or all of their businesses, the process has tended to take much longer than expected and this is something that some entrepreneurs underestimate,” says David Tosh, a relationship manager at RBC Wealth Management in London. “Even when things go smoothly, the negotiation process can be lengthy. This can be a stressful experience and for some people it can be overwhelming, so it is important to speak to the right advisers early on so that you are prepared for every possibility.”
Once advisers are in place and you are ready to start the sale process, it is important to understand how much your business is worth and the price it can realistically command in the market. It is a conversation that can prove difficult for a founder who has poured their heart into the company over the years; nevertheless, it is an important discussion to have.
“The business is always going to have an emotional value versus a financial value. You need to be realistic about the value of your business, and the value you have in it, at the moment and in the future,” Waller says.
From an objective point of view, is the business in good health? The best time to sell a business is when it is doing well, has good management in place and has a successful financial track record. Nevertheless, whether it is performing well or has room for improvement, think about what needs to happen to achieve the best possible price. This could mean renegotiating inefficient contracts or hiring in new senior staff, for example.
Moreover, are all contracts, permits, legal documents and other papers in order? It is also crucial to have an accountant to help you consider any tax implications that might affect the sale. The due diligence process will take time.
Finally, go into the process with your eyes wide open: be prepared for delays and obstacles along the way. For some business owners, the sale of a business can take weeks, and others years.
“There are various ways in which you can exit a business. Depending on who you sell to, it can be a drawn-out and stressful process that takes up a lot of your time. Having the right team around you both pre- and post-exit can only help to alleviate this,” Waller says.
Just remember that planning makes perfect.
We want to talk about your financial future.
This publication has been issued by RBC’s Wealth Management international division in the United Kingdom and the Channel Islands which is comprised of an international network of RBC® companies located in these jurisdictions and includes RBC Europe Limited and Royal Bank of Canada (Channel Islands) Limited. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by RBC’s Wealth Management international division.
This publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, the value of investments and income arising can go down, future returns are not guaranteed, and an investor may not get back the amount originally invested. Countries throughout the world have their own laws regulating the types of securities and other investment products and services which may be offered to their residents, as well as the process for doing so. As a result, any securities or services discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law none of the entities which comprise the international division of RBC Wealth Management nor any of their affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management.
Clients of RBC Europe Limited may be entitled to compensation from the UK Financial Services Compensation Scheme (FSCS) if it cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. For further information about the compensation provided by the FSCS scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website FSCS.org.uk. Please note only compensation related queries should be directed to the FSCS. Royal Bank of Canada (Channel Islands) Limited is not covered by the UK Financial Services Compensation Scheme.
RBC Europe Limited is registered in England and Wales with company number 995939. Its registered office is 100 Bishopsgate, London EC2N 4AA. RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Royal Bank of Canada (Channel Islands) Limited (“the Bank”) is regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s general terms and conditions are updated from time to time and can be found at https://www.rbcwealthmanagement.com/en-eu/terms-and-conditions. Registered office: Gaspé House, 66-72 Esplanade, St. Helier, Jersey JE2 3QT, Channel Islands. Deposits made with Royal Bank of Canada (Channel Islands) Limited in Jersey are not covered by the UK Financial Services Compensation Scheme. Royal Bank of Canada (Channel Islands) Limited is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for ‘eligible deposits’ up to £50,000 per individual claimant, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the Government of Jersey’s website http://www.gov.je/dcs or on request.
Investment services offered by the Bank are not covered by an investor compensation scheme as there is currently no such scheme operating in Jersey, however ‘eligible deposits’ held pursuant to investment services may be protected under the Bank Depositors Compensation Scheme described above – for more information see the Bank’s general terms and conditions. Some of the products that the Bank might recommend to you could be registered overseas and may be covered by a local compensation scheme. Your investment counsellor will provide you with the details of any overseas compensation schemes (where applicable) at the time of making an investment recommendation.
Copies of the latest audited accounts are available upon request from the registered office. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence.