Entrepreneurs shouldn't overlook exit planning - no matter how much they love their job

Over a third of businesses in the UK are owned by individuals who are either already retired or approaching retirement within the next decade. Yet many may not have a clear exit strategy in place and could be missing out on significant unrealised value.

In the UK, fewer than 30 per cent of businesses listed for sale actually find a buyer each year.

Considering that the typical micro business is valued at around £90,000 to £100,000, this represents a significant amount of unrealised potential for retirement. Establishing a clear exit strategy is the most effective way to enhance the personal value of a business and secure financial stability for the future.

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Many business owners find themselves unprepared for selling their business due to poor planning, the struggle to manage daily responsibilities, and a lack of innovative thinking.

Jonathan Barber shares his expert insightJonathan Barber shares his expert insight
Jonathan Barber shares his expert insight

This situation puts businesses in a vulnerable position against unforeseen circumstances such as health problems, family issues, stress, or even global crises as we’ve seen with the pandemic.

One major obstacle to leaving a business is the absence of a solid business strategy. Exiting a business isn’t solely influenced by sudden changes. With more individuals aiming for a healthier work-life balance and considering early retirement, it doesn’t necessarily mean that business owners are more equipped to step away.

Lack of proper planning can complicate a move, whether it is planned or not, leading to a loss of potential financial benefits. Many people overlook exit planning, thinking it is unnecessary or irrelevant. A common misconception among business owners is that they don’t require an exit strategy, particularly if they find satisfaction in their work, maintain a healthy work-life balance, have financial stability, and enjoy their client relationships. However, neglecting to plan adequately can hinder a successful exit from their business. In the worst-case scenario, this could result in the inability to find a buyer or successor, ultimately forcing the business to shut down.

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An exit strategy ultimately hinges on the existing business structure and the presence of a clear successor, whether that be an employee or a family member.

Whether the goal is to sell the business or pass it on, it is crucial to follow an essential checklist by answering these questions to unlock the full value of the business:

1. Have effective processes and practices been put into place?

2. Have the practices been documented?

3. Is the business prepared for the future?

4. Has value been maximised?

5. Are contingencies covered?

6. Has a target buyer been determined?

7. Have the relevant stakeholders been given clear information?

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Conducting regular reviews is key. It is important to understand that exit planning isn’t a universal solution; it’s tailored to each business and its owner, focusing on what works best for them. The most crucial step for owners preparing for an exit is to make themselves unnecessary, allowing the business to run smoothly without their direct involvement. Additionally, as the business evolves, the exit plan should also be flexible and updated regularly, so it is wise for businesses to review their strategy at least once a year.

Jonathan Barber is Executive Director (UK) for The Institute of Financial Accountants

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