Nick Henderson at Nexus Insurance Brokers offers the guidance to ensure you can remove yourself from your business at any time – either by retiring or selling – with the rewards you have earned.
Practical Matters: how to make a smooth exit from your business
Planning an exit from your business can be a stressful time for many. Nick Henderson, the training and development director at Nexus Insurance Brokers, says the purpose of exit planning is to ensure you can remove yourself from your business at anytime - either by retiring or selling - with the rewards that you have earned or are working towards. Here's his top 10 tips on how to do it on your terms.
1 Create and build your plan
Having a plan gives you focus and helps to ensure the achievement of personal, business and financial goals. Creating an exit plan is a highly individualised process and there is no one solution that fits everyone. The important thing is to set personal goals based on your values. Whether your intention is to sell up or to transfer ownership to managers, employees, family, or charities, an exit plan is always needed if you want to do things on your own terms.
2 Ensure your plan covers the essentials
Your plan needs to cover the essentials, such as having an up-to-date, valid will that is attested in all relevant jurisdictions. Are you clear on the implications of dying without a will? Are you aware of Sharia law? It is also worth looking at trusts to potentially assist in your financial planning, as well as considering other legal and tax issues (if any). Put in place all appropriate insurances to mitigate the downside risks and establish all wealth creation vehicles to facilitate departure at a time of your choosing.
3 Review your plan regularly
It is vital that you review your plan regularly - at least once a year - so it can be adapted to any new aspirations or circumstances. An out-of-date plan is likely to become a source of frustration, missed opportunity and regret.
4 Have a succession plan
Irrespective of whether you are selling up or not, your company needs someone to take over after you have left. But does your planned successor have what it takes? Having a plan drawn up early on allows you to coach your successor, give them honest and direct feedback, monitor their progress and build their competence.
5 Preserve family harmony
If you are running a family business, it is wise to involve all relevant members from the outset to reduce uncertainty and gain a full overview of the views that matter. The last thing you need is a family feud destroying relationships and hard-earned profits. Besides, you will also want to ensure that any transfers to children meet your exit objectives.
6 Share your plans with your key employees
Transparency is important. If you are too secretive, your employees will speculate and become stressed or less focused. If appropriate, you should be upfront and, depending on your strategy, you may want to get key employees to buy in or have a buy/sell agreement to facilitate your exit.
7 Get your business valued
Many business owners have an overinflated view of what their asset is actually worth. At the end of the day, it is only worth what someone is prepared to pay for it. Don't leave it to chance. Get a business valuation so you know the range of possible prices.
8 Cut your personal involvement
Any business that relies too heavily on one person's involvement may be rendered worthless without them. This is why a structured plan is needed to ensure that, even in the absence of an influential owner, the company remains vibrant, viable and valuable. If you are that all-important person, try testing your plan. Take days out to enjoy the activities you envisage doing once you have exited, see where the problems arise and address them now. This is your reality check.
9 Form a trusted team of advisers
A good exit plan may well be complex and require a number of different trusted and technical experts in their own field. Typically, at a minimum, the advisory team will consist of a banker, a lawyer, a financial adviser and an auditor/accountant. Their value is in their advice, guidance and experience. Remember, they are independent and without emotional ties to your family or business and, therefore, better able to stay focused on pertinent issues.
10 Do it now
Delay is the enemy. This is not the time to procrastinate. There are too many people who nearly managed to do or achieve something. Don't fail to realise your wishes - you've worked too hard to fail at the final hurdle. And while you're at it, have a medical to establish your health. You should also start to diversify your wealth - avoid too many eggs in one basket. Good luck!