Many of my clients tell me that the decision to exit their business creeps up on them slowly. For years, they’ve poured their heart and soul every day into making their company better than the day before – relishing the challenges as they compete for customers and watch profits grow.
Then a nagging doubt appears. Perhaps they succumb to the lure of other exciting roles or even better business propositions. Or they start thinking about retirement. After all, it’s only natural to want to enjoy the fruits of one’s labour. As somebody once said, ‘Entrepreneurship is living a few years of your life like most people won’t, so that you can spend the rest of your life like most people can’t.’
Exiting the business has just as many implications for your personal wealth and your lifestyle as starting one. And the impact might not just financial, but also emotional. In short, failing to plan is planning to fail. Here I share with you the seven most common pitfalls I’ve encountered while advising clients on exiting their business:
1. Not setting aside enough time
An exit strategy is not something you can plan within a couple of days or weeks. Ideally you should begin planning a year or two beforehand to give yourself the best chance of maximising value and optimising your wealth preservation. Even if your exit seems like a long way off, I regularly discuss with my clients when and how they might want to exit, the cash flow they need to finance their lifestyle, and any factors that are likely to come into play. This gives us sufficient time to take a strategic view and increases our scope for manoeuvre.
2. Failing to pimp up the business
If you’re thinking of selling, take measures to maximise the value of your business before the sale and make your company as attractive as possible to potential buyers. This could be everything from cleaning up your financial records, ensuring you have a strong management team in place, or introducing new product lines. Again, timing is important here: if you take these measures well ahead of time while you’re not under pressure, you can respond quickly to any required changes.
3. Avoiding family confrontation
No matter to what varying degrees your spouse and your children were involved in the company, it’s common for emotions to run high ahead of an exit. Each family member might have differing ideas on the company’s value, how the proceeds should be used, or what role they should play if the business is to continue. Family conflicts can even prevent you from proceeding with your exit plan. I advise clients to hold a family meeting to discuss everyone’s expectations early on. Beforehand, explain your expectations to each of your family members individually. In this way, you give them time to think about what they want out of the exit plan.
4. Going it alone
It’s vital that you surround yourself with a competent team of personal and business advisors. Appointing an external professional or advisor who can manage the process and also be at the table to manage the considerations and needs of different family members tends to be key in discussing business exit strategies. An external person usually makes the process much more objective and decisions tend to be taken more rationally.
5. Not having a golden number in mind
Many of the business owners I advise have a rough idea of their company’s value in mind, but in many cases it’s more of a guesstimate, ballpark figure, rather than anything fact-based. I support them by bringing in specialists to get a value of their company, even if the exit or sale is still some way off. By understanding the present value of the company, we can act to increase the value and get the sale price they need to retire.
6. Ignoring the tax implications
Business owners tend to overlook the importance of protecting their private wealth. The proceeds from selling the business will be after tax, so I work with my clients to ensure they have the right tax structure in place for the sale, for example by reducing their reserves in their company ahead of the sale and accumulating assets in their private portfolio. This can include staggering the distribution of dividends, accumulating tax-efficient investment structures, or adjusting a matrimonial contract.
7. Entering the void
You may feel like your business is ‘your baby’ and part of your identity. When you make the decision to leave it behind, you’re bound to feel a mixture of fear, loss, grief, regret, or stress. Accept that, as with any major life event, there may be a certain period of mourning and develop a plan for the first 6-12 months so that you have something to look forward to, such as travel or education. I’ve encouraged clients to engage in philanthropic activities and invited them to attend the sporting and cultural events we sponsor, such as the Montreux Jazz Festival, Formula E and our Art Collection, among others. And sometimes, doing nothing for a period of time can be the best advice!