For many entrepreneurs, building and growing a business is a lifelong pursuit. However, whether driven by retirement plans, new ventures or personal circumstances, every business owner will eventually face the pivotal question: When should I start planning my exit?
The most successful business exits aren’t rushed decisions – they are the result of careful, strategic planning that starts well in advance. Given recent changes introduced in the Autumn Budget, including adjustments to Capital Gains Tax (CGT), reforms to Business Relief (BR), Agricultural Property Relief (APR) and rising operational costs, timing your exit has never been more critical.
In our latest blog we discuss how far ahead you should be preparing your exit:
Why Early Exit Planning Matters
Exit planning isn’t just about selling your business, it’s about maximising value, minimising tax liabilities and ensuring a smooth transition for both you and your business. Starting early gives you the flexibility to:
- Optimise financial and tax efficiency in light of changing regulations
- Enhance the business’s value by improving operations and financial performance
- Prepare for unexpected events, such as economic shifts, health issues or changes in market demand
- Align your personal and professional goals for life after the exit
The earlier you start, the more control you’ll have over the process and the outcome.
The Ideal Timeline for Exit Planning
While every business is unique, a general rule of thumb is to start planning 3 to 5 years before your intended exit. This time frame allows for:
1. 3-5 Years Out: Strategic Planning Begins
At this stage, your focus should be on the big picture:
- Review Your Business Structure: Is it optimised for tax efficiency and ease of sale? Recent changes to BR and APR could impact the tax treatment of your business assets, especially if you’re in the agricultural sector.
- Enhance Business Value: Strengthen your management team, diversify revenue streams and improve operational efficiency to make your business more attractive to buyers.
- Tax Planning: With CGT rates expected to rise, consider strategies that could reduce future liabilities, such as restructuring ownership or utilising available reliefs.
- Define Your Exit Goals: Are you looking for a complete sale, a management buyout or a transition to family members? Each option requires a different approach.
Key benefit: You’ll have ample time to make changes that enhance your business’s value and address any weaknesses.
2. 1-3 Years Out: Preparing for Market
As you move closer to your exit, the focus shifts to preparation and positioning:
- Financial Readiness: Ensure your accounts are in order, with clean, transparent financial statements. Buyers will scrutinise your numbers during due diligence.
- Succession Planning: If your business depends heavily on you, work on transitioning key responsibilities to your management team.
- Valuation: Get an independent business valuation to set realistic expectations and identify areas where you can still boost value.
- Consider Market Conditions: Economic factors, such as interest rates, industry trends and regulatory changes (like the upcoming Employers’ NICs increase), can influence the timing of your sale.
Key benefit: You’ll be positioned to attract the right buyers and negotiate from a position of strength.
3. 12-18 Months Out: Executing Your Exit Strategy
Now it’s time to put your plan into action:
- Engage Professional Advisers: Work with financial advisors, tax specialists and legal experts to manage the sale process and navigate complex negotiations.
- Finalise Tax Strategies: Ensure you’re taking full advantage of reliefs and allowances to minimise tax liabilities, particularly with reforms to CGT and EOTs (Employee Ownership Trusts) on the horizon.
- Due Diligence Preparation: Assemble key documents, including contracts, employee records and legal agreements, to streamline the due diligence process.
Key benefit: A well-prepared exit reduces stress, avoids last-minute surprises and helps you achieve the best possible outcome.
What If You Need to Exit Sooner?
Not all exits are planned years in advance. Life can be unpredictable and circumstances may require a quicker sale. If you find yourself in this position:
- Prioritise Key Value Drivers: Focus on financial transparency, strong leadership continuity and mitigating potential deal risks.
- Seek Expert Advice Immediately: Engaging with a financial adviser early can help identify strategies to preserve value and minimise tax exposure, even within a compressed timeline.
While an accelerated exit may limit some opportunities, professional guidance from the team at Raymond James, Ribble Valley, can still help you achieve a favourable result.
The Impact of the Autumn Budget on Exit Planning
The 2024 Autumn Budget introduced several changes that directly affect business exits:
- Higher CGT Rates: If you’re considering a sale, the timing could significantly impact your tax bill. Early planning allows you to explore strategies to manage these changes effectively.
- Reforms to BPR and APR: These adjustments could reduce tax efficiencies, especially for family-owned and agricultural businesses, making succession planning even more critical.
- Employee Ownership Trust (EOT) Changes: If an EOT is part of your exit strategy, stricter regulations around control retention and trustee residency must be factored into your plans.
Staying ahead of the changes is key to protecting your business’s value and personal wealth.
Closing Thoughts
The best time to start planning your business exit is today. Whether your timeline is five years of five months, proactive planning ensures you’re prepared to navigate both expected and unforeseen challenges.
Ready to start planning your exit? Contact Raymond James, Ribble Valley today for a confidential conversation about your future.
Risk warning: With investment, your capital is at risk. The information in this blog does not constitute advice or a recommendation, and you should not make any financial decisions based solely on it. If you require personalised advice, we are here to assist you.