It has never been more important to be able to judge when the right time has come to exit a business. It’s something we discuss on a daily basis with our clients and something that you develop a real instinct for: the advice we give varies from business to business depending on what the individuals want to achieve, what shape the business is in and, importantly in the current climate, what the owners have been through personally.
The planning for a business exit is usually meticulous. The timing, the valuation, the tax considerations, the future of the company, the implications for staff… when you’ve built a company up from nothing, there is a strong emotional bond and it’s something we never forget when dealing with clients.
Sometimes, though, we have to help clients to make a decision that wasn’t part of their plan. That sometimes means telling people something they don’t want to hear: perhaps they had planned for retirement but the best course of action is to wait for another couple of years. Perhaps they don’t want to leave the business, but it’s best for everyone concerned if they let someone else take the reins.
And we’ve certainly been giving a lot of advice – both financial and pastoral – to clients recently. We make a point of helping to shoulder the burden that our clients are feeling, and there won’t be many more challenging periods in any of our lifetimes than the 20/21 financial year.
Huge events have that ability to wipe out everyone’s best-laid plans. The global crash in 2008 is one such example; the Covid pandemic is another. There have been plenty of businesses who have been affected by both, and it’s taken its toll.
For example, we have spoken to people who were perhaps in their late 40s/early 50s and had one eye on retirement when the 2008 crash happened and reduced the value of their business. So, they knuckled down and built the business back up over the subsequent 12 years, only for the pandemic to knock them back once again.
It can be hard, talking to people in that position, to convince them to do it all over again, and that’s where you have to consider the human beings behind the business.
It might even require decisive action, for example if delaying an exit by even a couple of months will just continue to cost somebody money. It’s certainly the hardest part of our job, but we will always give the right advice to the right people at the right time.
And what of the others: the people who might have wanted to exit their business but who now have to wait for perhaps a few years longer before doing so?
The pandemic has had a remarkable effect on a lot of companies, who have become leaner, more efficient, who have refocused on new markets, who have embraced a more fluid, digital way of working. In some cases the past 12 months have motivated them to stay involved with their business for longer than perhaps they had planned.
For these businesses, balance sheets might temporarily be down, but if there is a clear recovery path then perhaps exit plans could be delayed and waiting for things to improve could yield significant benefits.
Capital Gains Tax (CGT) has been on a lot of people’s minds recently. The perennial threat of capital gains tax rises often prompts people to consider exiting a business. We have certainly seen business exits that you would describe as ‘premature’ because people don’t want to have to pay any more to the exchequer than they have to.
It was with some relief, therefore, that we heard Chancellor Rishi Sunak froze the CGT thresholds until 2026. CGT applies to business disposals, and even at the beginning of this year there were reports of business owners rushing to dispose of their assets before a CGT threshold change.
That now isn’t happening for a further five years, and we hope it will give businesses breathing space to recover and for those owners to develop – and adhere to – a considered exit strategy.
Provides you with control – the plan gives you confidence in the exit process and in the company’s value, helping you to understand when (and when not) to sell.
Makes you better prepared – a well-devised plan will help to prepare you for the upcoming negotiations and puts you in a better position to capitalise in the marketplace.
Helps you to protect your loyal employees – having a clear plan for the next stage of the business allows you to protect and reward the employees who’ve been a key element of your business success.
Preserves your own wellbeing – with a productive plan in place, you can reduce your stress levels and protect your own mental health and wellbeing – an important factor in your ability to lead the business.