08 Jul 2019 4:08 PM

A majority of private businesses are owned by 'baby boomers', i.e those born between 1946 and 1964. These entrepreneurs are now entering retirement and consequently we should anticipate a significant transfer of business ownership. Globally this business transfer is estimated to be worth over $10 trillion.

According to a survey of business owners by the Business Enterprise Institute 57% of business owners intend to retire in the next 5 years and 76% intend to retire within a decade, however, surprisingly only a small percentage of business owners have a succession plan in place.

The Economist Intelligence Unit reports that only 36% of owner managers in the UK have identified an individual, management team or other organisation who will ultimately take over their business.

Given the time and energy that entrepreneurs dedicate to building a business it is a shame that many do not prepare for a timely transfer of ownership. A lack of planning often means owners face a longer and more uncertain exit process.

The business is likely to be the owner’s largest financial asset. Assessing how to extract value from the business can be challenging. In many cases, business owners may find they are dependent on the business’s continuing success to fund their retirement.

It makes good sense for owners to start thinking about their eventual exit plan well in advance. Typically, one of the reasons for postponing the process is uncertainty as to whether family members or senior employees have an interest in running the business. Many businesses that were assumed to be destined to stay within a family have ended up for sale on the open market.

Owners who have sound exit strategies will be better positioned to maximise value on disposal. There are a number of key elements in preparing a business for sale and we would suggest that a business owner consider the following areas as part of the preparation process:

  • obtaining an independent valuation of the business 
  • researching the market place to gauge buyer interest and disposal values
  • seeking professional tax planning advice
  • ensuring internal systems are operating efficiently and that there are no hidden issues that could impact the value of the business.
  • structuring incentive schemes to encourage the retention of key employees, it's a fact that businesses with strong management teams in situ attract higher prices

The more integral an owner is to the success of the business the greater the risk to potential buyers; therefore, there should also be a clear timetable for the transition of responsibilities. In addition, exit plans should include sufficient flexibility to adapt to changing circumstances. Don’t rely on Plan A.  The majority of business owners sell a business only once in their lives, and it's a time when most entrepreneurs will rely on professional advisors to help them through the process and to negotiate the best deal on their behalf.

To find out more about how we can help you prepare a business exit strategy and optimise the value of your business please contact one of our corporate finance specialists.

It is never too early to start the planning process.