Having an exit strategy in place is absolutely critical for business owners. While parting ways with the company you’ve worked so hard to establish might seem a million miles away, the safety blanket an exit strategy provides shouldn’t be underestimated, especially when it comes to planning for the future.
Exit strategies are integral to any business owner looking to manage their financial planning. This piece is closely linked to my last blog on financial independence, which you can find here.
There are multiple options that can be considered when it comes to exit strategies – so the end result is tailored to your individual needs and desires. In order for us to provide accurate and bespoke advice, we need to understand what a client wants out of life, and ultimately what their end goals and aspirations are. As part of this, we have in-depth conversations about an individual’s financial plans for their business.
For any business owner, getting their head around money management is key. This means not just relying on the sale of their business to achieve financial independence, because trying to sell your business for a lump sum could be a huge risk, especially if the individual doesn’t have any other assets in place. By creating an exit strategy, it can help plan how to get out of the business with as little impact on their overall financial situation.
That being said, before implementing an exit strategy there are several points that should be considered to ensure the most tax-efficient plan is being adopted:
- Entrepreneurs’ Relief is available to business owners who meet a certain criteria and, in a nutshell, provides a tax benefit so that the sale proceeds from a business are taxed at only 10%. The criteria you and your business fit into will depend on a number of factors such as whether you’re a sole trader or business partner; whether you have at least 5% voting share; how long you’ve owned the business for. Our team at Cameron Chase can help you understand whether you fit into this criterion.
- The tax benefits of Business Property Relief (BPR) are also key. On the death of a business owner, providing they meet a certain criteria, the value of their business can be transferred to beneficiaries, without any Inheritance Tax. Again, our team can provide advice as to whether you would meet these requirements.
Once you know which tax option is going to be most beneficial to you and your business, careful planning is required so that the strategy is applied over a number of years – it certainly should not be left to the last minute. We have referenced some of the key options to consider here:
- Merger and acquisition – this normally means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills, and can save resources by combining. For bigger companies, it’s a more efficient and quicker way to grow their revenue than creating new products organically.
- Initial Public Offering (IPO) is the sale of a private company to the public.
- A Management Buyout (MBO) is when the business can be sold to internal management.
- Straightforward exit strategies usually refers to the sale of the business.
At this stage, cash flow planning is essential, so business owners can understand exactly how they can achieve financial independence through selecting the most appropriate exit strategy.
We’ve come across clients who have left setting up an exit strategy to the last minute, which means extra pressure is added when liaising with third parties, like accountants. We work with our clients to not only understand what the best tax relief option will be for them, but also which exit strategy is going to be most suitable to satisfy their future financial plans.