Business, Investment planning, Protecting, Retirement

Business exit strategy – a brief overview

27 January 2023

Around 4.8m people in the UK are projected to be of the state retirement age1 or over in 20243 – and many of these will be business owners who are looking to start planning their business exit strategy. 

Successful business owners, who may have spent years pouring their hearts and souls into their company, will understand the importance of clear business objectives and goals. Planning how to take the next step when exiting a business and moving into retirement or a new venture, requires similar preparation. When considering your business exit strategy, it is important to maximise the rewards for the many years of hard work and personal sacrifices that have been made, in order to create financial independence for yourself and your family. You therefore need to understand how to convert your business into wealth and successfully reach your financial planning goals.

Am I financially ready to exit my business?

Deciding how and when to sell your business takes a lot of preparation, and among your considerations will be points that are unique to you and your circumstances. Early planning is the best way to ensure success, and at least three to five years before you aim to leave your business, you should already be looking at next steps for your business exit strategy. 

First, establish how much money you need for your chosen retirement lifestyle, this will help set a target ‘exit value’ for your business. Ideally, you will already have an idea of the value of your business – though be aware that many owners overestimate how much their business is worth. 

If you ensure your business is in good shape, has a demonstrable track record, and a clear plan in place for future growth, then buyers will be more interested. With a little advice, and a solid financial plan, the proceeds of your business can then be converted into assets, which will help you move onto the next stage of your life.

Which business exit strategy is most effective?

There are a variety of ways to exit your business, each with a number of considerations.

Members Voluntary Liquidation (MVL)

  • This business exit strategy is often used for a lifestyle business where there is no real market to purchase the business. Typically, this is due to the director being ‘the business’ 
  • Assuming the business is solvent, a MVL can be a tax and cost-efficient way to close the company
  • Upon closure, retained profits are distributed to the shareholders and treated as capital rather than income

Business sale

  • Consider what assets you are selling – shares in the business, trade, goodwill, assets?
  • Find the right buyer – remember this process could be time consuming, so plan for additional time – as a general rule, allow at least six months. Timescales are normally driven by the seller
  • There may already be interest in buying the company from inside the business, or from an outside source – a management buy-in or buyout
  • Where company shares are sold, the gains will be subject to capital gains tax (CGT). You may wish to take financial advice to understand if this can be mitigated

This government site has useful information about responsibilities when selling your business2

Keeping it in the family 

  • If you want to keep your business in the family, you will need to effectively secure its future when you leave, and it is vital that you plan ahead when choosing this business exit strategy
  • Make sure that the next generation is ready – or willing – to take over. Is your family member equipped to take the reins? Consider their financial background and what assistance they may require – such as outside help – as they learn the ropes

What to consider when planning your business exit strategy

With a target exit value and timeframe in place, you should revisit your business plan and make sure it aligns with your personal finance plan.

Five years out, this should include details of the amount needed to fund your retirement, your expected next steps – such as additional business ventures, or ways to enjoy your newfound financial freedom – the amount you expect to receive upon sale of the business, and an understanding of how that value will be turned into cash and used to meet your financial goals.

Plans should include:

  • An outline of how you expect to maximise your business’ value, focusing on profit and growth
  • A review of business productivity 
  • An overview of your management team 
  • Your products or services – are they scalable and could you react quickly to changes in market demands, what is your USP compared to competitors?
  • The strength of your client base – and how you can protect it
  • A flexible and realistic asking price

While getting the sale over the line might seem like the most pressing concern when creating your business exit strategy, failure to consider the tax implications could see you unable to fully enjoy the fruits of your labour. Considerations should include pensions, dividends, Business Relief and Trusts. 

How we can help

A financial adviser will guide you through the ways in which you can invest for the future to achieve financial independence, so that your planning extends seamlessly from your business interests to your personal finances. Every personal situation is unique, so you’ll need a unique plan to ensure your financial future is secure. But remember, early planning is key.

For more expert guidance you can also download our Business Owner’s Guide to Exit Planning.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.

Exit planning strategy may include some products and services that are separate and distinct from those offered by St. James’s Place.

1 Estimates of the population for the UK, England, Wales, Scotland and Northern Ireland, ONS, accessed Jan 2023

2Selling your business: your responsibilities, Gov.uk, accessed Jan 2023

3 Future of an ageing population, Government Office for Science

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