Hollie Gallagher
- Partner
- Corporate
Selling your business: 5 steps to optimise your exit strategy
Selling your business can be one of the most significant milestones in your entrepreneurial journey. Whether you’re planning to retire, pivot to a new venture or simply realise the value you’ve built, a well-planned exit strategy can make the difference between a good deal and a great one.
Below are five essential steps to help you maximise value and minimise risk during your business sale.
1. Start Planning Early
Where possible, exit planning should start years before you intend to sell. Early preparation gives you the flexibility to structure your business in a way that appeals to buyers and meets your long-term goals. To do this you need to:
- Establish clear objectives. What are your personal and financial goals? Are you looking for a clean break or phased withdrawal? Do you want to retain a stake or stay on as a consultant?
- Identify potential buyers. Consider who might be interested – competitors, investors, or even employees (through an MBO).
- Review your legal and tax position. Early advice from lawyers and tax advisers can uncover valuable planning opportunities.
2. Get your house in order
Buyers want confidence in what they are buying, and they will scrutinise every corner of your business. Conduct a pre-sale audit of your business to make it as attractive and transparent as possible. This includes:
- Financials. Ensure the accounts are accurate, up to date, and show strong, sustainable performance.
- Contracts. Review key customer, supplier and employee contracts. Are they in writing? Are they transferable?
- Intellectual Property and brand. Make sure all IP (branding, domain names, trademarks, software and patents) is properly registered and owned by the business.
- Litigation. Resolve any outstanding litigation so this does not become a red flag to the buyer.
- Employment. Ensure all employees, casual works and contractors are on the appropriate contracts.
- Data protection and privacy. Check that all data received or retained from employees and customers/users is appropriately managed and stored (in accordance with legislation).
- Compliance. Resolve any outstanding legal, tax or compliance issues.
Your aim is to present a well-run and low risk business. This will improve the valuation and speeds up the buyer’s due diligence.
3. Value your business realistically
A realistic valuation helps you set expectations and negotiate based on an informed position.
Common methods of valuation include:
- Asset based valuation (for asset heavy businesses).
- Market approach (benchmark your business against similar companies in your sector).
- Income approach/discounted cash flow (projecting future cash flow and discounting them to present value).
- Earnings multiple approach (applying industry-standard multiples to EBITDA/revenue).
Getting the valuation right is important. An overvaluation can scare off a buyer, whereas an under valuation can harm you.
4. Structure the deal for maximum benefit
How the deal is structured can be just as important as the price.
- Share sale – V – Asset sale. Will you sell the entire company or just specific assets or subsidiaries? Share sales are often more tax efficient for the seller, while buyers may prefer asset sales to avoid historical liabilities.
- Exit or remain. Are you exiting fully or staying involved post-sale?
- Payment terms. Will it be an upfront cash payment, an earn out, or deferred consideration? Do you need to consider security for any outstanding consideration?
- Tax. How will the proceeds be taxed?
- Warranties and indemnities. Will you stand behind the warranties or is a warranty and indemnity policy be more appropriate?
Legal, tax and financial advisors play a crucial role in ensuring the structure works for the seller’s financial and personal goals. It’s essential that you have a good working relationship with your advisers from the outset.
5. Prepare for life after exit
Once the deal is done, what will you do next?
- Tax planning. Make the most of any available reliefs and other tax planning opportunities.
- Investment strategy. Think about how you will manage and preserve the wealth from the sale (for generations to come).
- Personal goals. Whether it’s retirement, a new venture, or philanthropy, have a post-exit plan to guide you through the next chapter.
From experience, many sellers underestimate the emotional impact of exiting their business. Transition planning can help to ensure that you’re ready both financially and personally for what’s next.
Selling your business is the culmination of years of hard work. By starting early and thinking about your exit strategy, you can optimise the outcome for you and your family.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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