How to hand over your business

The importance of Business exit planning

Unless you plan to live to the age of 90 and never retire, one day you’ll want to stop running your business. Maybe you’ll pass it on to your family or friends; maybe you’ll sell it to an investor or to colleagues; maybe you’ll turn it into a public company on the stock market. And maybe you’ll be years away from any of that, but will do so brilliantly that someone will come along and ask if they can buy your business right now.

As with everything in life, whichever option you choose, a smooth exit is always best, both for you and the future owners of the business which is why business exit planning is vital. Thinking about it in advance can help ensure that when you do sell, you do it at the right time, to the right buyer and at the best price for your business.

Here are some of the options:

Pass the business onto your family: Providing that’s what they want, this is obviously a lovely outcome for both your family and your customers, who can be reassured that the values and culture of your company will be in safe hands. But you need to be sure that your family not only are genuinely interested in inheriting the business, but also that they have the skills and experience to make a success of it – or the outcome could be disastrous. Businesses passed on in this way are usually partly or wholly exempt from inheritance tax, but you should always talk to a financial advisor to make sure.

A management buyout: You sell part or all of the company to the next generation of managers. This allows the company to continue as a private enterprise and can involve a relatively smooth transition, as you’re selling the business to the people who are already running it.

Become a public company: You sell part of your company as shares in the public markets. This doesn’t usually involve major changes in how the company operates, and you and your management team will usually stay on but it will create extra work for them, as public companies come under a lot of scrutiny, with a whole host of legal and administrative requirements to meet.

It also fundamentally changes the ethos of your business, as you become answerable to your shareholders. Your shares will probably be subject to a share lock-up agreement, which means you can’t sell them for a period of time probably somewhere between one and two years but after that you can sell them at whenever is a good time for you.

A takeoverby another company: this means someone else is now in charge, so they may make big changes to the business and may replace the management team with their own people (but that may be what you want!). Selling your business in this way may allow you to reap the financial rewards immediately, but there may be what’s known as an earnout period, which means the price is determined partly by the performance of the business over a set period after the acquisition.

It’s important to think about what you want: whether you want to stay closely involved in the company’s future, or take the money and run. And if other investors own part of the business, it’ll be their decision too, which is why it’s important to always partner with people who are on the same page as you and won’t pressure you into making the wrong decision for a quick buck. Getting advice from financial and legal professionals is vital, not just to help you make the right decision, but to ensure you implement it correctly there will be a lot of different issues to consider, from tax relief to intellectual property law.