As a business owner, the idea of exiting your company
may seem like a distant dream, especially when you're focused on
achieving success and growth. However, planning for your eventual
departure is a critical step that should begin long before you're
ready to leave. According to Michelle Geraghty, Business Development
Head at FNB Business Advisory, a successful business exit is a
two-step process that requires careful consideration, preparation, and
execution.
"Exiting your business is almost always a very emotional decision,"
Geraghty says, "and to avoid those emotions clouding the decisions
that need to be made about the exit, it's vital that the ground has
been thoroughly prepared well in advance."
Geraghty explains that preparations can be extensive and will differ
from business to business. She emphasizes the importance of involving
trusted advisors early on. "It's essential that you have relevant
discussions with trusted advisers, particularly your bank and a legal
adviser," she advises, "so that you can put together a clear picture
of your options and, as importantly, weed out the ones that don't make
sense for you or the business."
Stress-testing every aspect of the business is another crucial step
that Geraghty highlights. "You need to make sure that you have
thoroughly stress-tested every aspect of your business, as a failure
to do so could force you to change the plans you have for your exit
down the line," she says. This includes reviewing legal documents and
ensuring that the business's governance structures are robust and
adaptable to change.
When the groundwork has been laid and the business is ready for the
owner's exit, Geraghty says that there are several strategies that can
be considered, but the most common of these are:
* _Sell the business outright_ - One of the most straightforward
options is to sell your business outright. However, it's crucial to
approach valuations with a realistic mindset. "Business ownership is
highly emotional, and this can taint your estimation of the business'
value," warns Geraghty. "You need to be realistic about what financial
gain you can unlock when you sell." To ensure a fair valuation, she
encourages discussions with various stakeholders, including lawyers,
shareholders, your auditor, and your bank. "FNB offers a specialist
advisory team that provides honest and transparent information about
market trends and current prices for similar businesses," she
explains.
* _Phased exit_ - If your business has a strong balance sheet, a
phased exit may be a viable option. This strategy involves the
business paying out the balance of a large loan account to you, the
departing owner, over a period of years. This can be accomplished
through financing or dividend payments. A phased approach offers
benefits such as limiting your tax liabilities in a single year and
minimising the impact on the business's finances and cash flow.
* _Partial management buyout_ - In this scenario, senior management
members purchase a portion of shares from the major shareholder,
providing them with cash to invest for retirement. This strategy also
presents an opportunity to include an element of employee share
participation, further strengthening the business's future.
* _Private equity_ - This can be an effective option for a partial
exit, particularly if your business has strong growth prospects. There
are various ways to structure this, including partnering with your
bank if they have private equity mandates in place, as FNB does.
Selling shares to a private equity fund can be an effective way to
extract value from the business upon your exit.
Irrespective of the option a business owner chooses for their business
exit, Geraghty emphasises that prudence and patience are always
prerequisites for success. "Be sure to fully consider all your
options," she says. "The array of exit strategies available might be
tempting to sift through quickly, especially when an owner is eager to
move on, but each option has its own implications for the future of
the business and its stakeholders."
She also highlights time as a significant factor in the transition out
of business ownership and warns against hasty decisions, "It's highly
unlikely that you will be able to wake up one morning and decide you
want to exit your business and have completed the process in a week's
time." The reality is that a proper business exit is a marathon, not a
sprint, requiring patience and meticulous attention to detail.
She also cautions against listening to casual advice. "What worked for
your friend's cousin, is not guaranteed to be the best option for
you," she notes, so thorough research and consultation with experts
are indispensable.
From a succession point of view, she cautions business owners with
exit plans to recognise that that personal dreams for the business may
not align with those of potential successors. "You may have had a
vision of your daughter taking over when you're ready to retire, but
her dream may involve moving to Bali and becoming a dive instructor."
She says that engaging in frank and open conversations with successors
early on can help clarify these points and prevent misunderstandings
and exit delays later.
Ultimately, Geraghty's overarching advice is to approach exiting a
business with the same care, dedication, and scrutiny as when you
first started it. "Take the time to evaluate each exit strategy on its
merits, do the hard work, and seek out diverse perspectives," she
says, "and you'll be best positioned to make a choice that will not
only honour the legacy of the business, but also ensure that it has a
future aligned to your aspirations when you first established it."
Ends.
