Exit and succession planning is the process of preparing a business well in advance for a change of ownership, whether that means selling to a third party, passing it to family, transitioning to management, or moving to an employee ownership structure.
Done well, it typically starts two to five years before the actual transition because most of the value-building and tax-efficient structuring work needs time to take effect.
Why leaving exit planning until you are ready to sell rarely works well
The single biggest mistake in exit planning is leaving it until the decision to sell or step back has already been made.
Many of the factors that determine both the value you achieve and the tax you pay on exit take time to put in place. These can include reducing owner dependency, cleaning up the share structure, qualifying for relevant tax reliefs, and establishing several years of strong, well-presented financial performance to show a buyer.
Starting the planning process only once you are ready to sell means you are negotiating from a position with far less room to improve the outcome.
The main routes to exit
Trade sale
A trade sale involves selling to another business, often a competitor, supplier, larger group or private equity-backed consolidator.
This can potentially achieve a strong headline price, but the business needs to be genuinely sellable.
That usually means reducing dependency on the current owner, maintaining clean and reliable financial records, and being able to demonstrate defensible and well-evidenced recurring revenue.
Management buyout
A management buyout, or MBO, involves selling the business to the existing management team.
The transaction may be funded through a combination of vendor finance, bank debt and sometimes external investment.
This route can help preserve continuity and company culture, but it may achieve a lower price than a trade sale and requires careful consideration of funding arrangements and any ongoing financial risk retained by the existing owner.
Employee Ownership Trust
An Employee Ownership Trust, or EOT, involves selling a controlling interest in the business to a trust established for the benefit of its employees.
This can be an attractive option for owners who want to protect the culture and long-term independence of the business while creating a structured route to exit.
EOT transactions can also have important tax implications, making professional advice essential when determining whether the structure is suitable.
Family succession
Passing the business to the next generation brings a different set of considerations.
These can include achieving fairness between family members, particularly where some children are involved in the business and others are not, inheritance tax planning, and making sure the next generation has the experience and support required to run the business successfully.
Tax reliefs worth understanding early
The tax consequences of selling or transferring a business can have a significant effect on the final amount an owner receives.
Business Asset Disposal Relief may reduce the capital gains tax payable on a qualifying business disposal, but specific conditions apply around factors such as share ownership, employment or office-holding, and the qualifying period.
These requirements need to be considered well before a transaction takes place rather than addressed retrospectively once a buyer has been found.
Employee Ownership Trust transactions also have specific qualifying conditions and ongoing requirements that need to be properly understood.
Leaving tax planning until late in the process can reduce the options available and potentially result in a larger tax liability than necessary.
Building the value before you sell
Exit and succession planning is not simply about arranging the final transaction. It is also an opportunity to strengthen the business before a sale or handover takes place.
Buyers generally place greater value on businesses that:
- Do not depend entirely on the existing owner
- Have recurring or contracted revenue
- Can demonstrate sustainable and well-evidenced profitability
- Have reliable financial information and reporting
- Have a capable management team
- Have clear operational processes
- Can continue operating successfully after the founder leaves
Developing these qualities can take several years, which is one of the reasons early exit planning can make such a significant difference.
How Artema supports exit and succession planning
We support owner-managed businesses across Ringwood, Wimborne, Poole and Bournemouth through the full exit and succession planning journey.
This can include an honest assessment of the current value and sellability of the business, tax-efficient structuring well ahead of any transaction, guidance on choosing the most appropriate exit route, and practical support throughout the transaction itself.
Our involvement can also include financial due diligence, input into the Sale and Purchase Agreement and assistance with completion accounts.
By starting the process early, business owners have more time to strengthen the business, understand their options and work towards an exit that supports both their financial objectives and their plans for the future.
Frequently asked questions
When should I start succession or exit planning?
Ideally, planning should begin two to five years before you expect to step back.
This gives you time to consider tax-efficient structuring, reduce owner dependency, strengthen the management team and build a stronger financial track record to present to potential buyers.
What is Business Asset Disposal Relief and do I qualify?
Business Asset Disposal Relief can reduce the capital gains tax payable on certain qualifying business disposals.
Eligibility depends on specific conditions relating to your ownership, role within the company and how long the qualifying conditions have been met.
It is important to review your position well before a proposed sale.
Is an Employee Ownership Trust sale tax-free?
Employee Ownership Trust transactions can have significant tax advantages where the relevant conditions are met.
However, the rules and qualifying requirements can change, so the structure should be carefully reviewed before proceeding.
How do I value my business before starting exit planning?
An indicative business valuation early in the process can provide a realistic starting point.
This will typically consider factors such as maintainable earnings, sector-specific valuation multiples, assets, financial performance and the risks associated with the business.
Understanding the current value can also help identify the gap between where the business is today and the value you would ideally like to achieve when you eventually exit.
Artema Limited advises business owners across Ringwood, Wimborne, Poole and Bournemouth on exit and succession planning, from early-stage preparation through to completion.