Plan business exits early to avoid regrets

Having a clear view of the end goal is a pre-requisite for any owner of an SME, says Richard Hurst of Southampton independent accountants and business advisers HWB, and the fact that we are currently working in a difficult market does not remove that pre-requisite.

Exit planning is a vital part of any business strategy yet all too often it is overlooked, resulting in last-minute decisions and lower reward for the risk, time and energy invested in a business - in many cases the work of a lifetime. 

In an ideal world potential exit scenarios are in place from the outset, but for most businesses the reality is a message which hits home when a significant event, business target or the achievement of a long-term personal objective hovers into view.

Hopefully this provides a window of at least three to five years in which to finalise aims, consider the different exit routes available and get the business into the best possible shape to meet the objectives of shareholders, management and the company as a whole.

The key lies in planning to exit from a position of strength - something which, while requiring confidence in the individual market sector, is underpinned by sound long-term management.  A recession brings challenges of its own but it's important not to let short-term priorities obscure the longer view. 

Depending on the type of business, a number of different exit routes are possible. The most common are:

• Trade sales - often the best way to secure a positive financial exit if acquiring the business offers clear benefits to a potential purchaser.
• Management buy-outs - the skills of a management team are a key consideration for banks and investors.
• Family succession - impartial guidance is crucial where emotional involvement runs the risk of clouding business judgement. Any successor must have the necessary skills and commitment to take the business forward and the vendor must be prepared to step back.

The effectiveness of any exit strategy relies on a business being in good shape financially, legally and in terms of its presentation to the wider world - and that requires genuine team effort. The overall impression to anyone dealing with the company should be of a professional, valued and thriving operation with a robust business model, strong management and committed staff. 

A thorough and frank overhaul of everything from accounting policies to statutory books, employee contracts to intellectual property rights takes time and should shine lights into the darkest corners, no matter how uncomfortable that may be. It's far better to reveal all to a trusted adviser at the outset than risk the eleventh hour loss of a sale or reduction in price when weaknesses are exposed by the harsh scrutiny of due diligence.

As always, the devil is in the detail, which is why HWB works closely with its clients, providing commercially astute advice and effectively becoming part of the management team in order to achieve long-term objectives.