Exit planning – A guidance note

Achieving a successful exit requires careful preparation and planning. Preparing your business for sale will make a considerable financial difference to the ultimate sale price.

An exit will likely be the culmination of years of hard work and a key life event, so it is worth investing the time and energy to ensure you get it right and have no regrets.

If you are considering selling your business, it will be vital to get your house in order well in advance of the exit. This will ensure that the business is as attractive as possible to potential buyers and will make the exit process as smooth as possible, avoiding any nasty surprises or delays along the way.

Although not many entrepreneurs are motivated by tax relief, early planning can help secure a tax efficient exit and potentially make provision for current and future family on the way.

Preparation and planning

It is never too early to start preparing if you are keen to secure maximum strategic value. It is worth considering at an early stage what your key objectives are, for example whether you are seeking a full sale or looking to retain a stake in the purchasing entity to benefit from future growth. A clear structure from the outset and a well-managed process will have a significant influence on the ultimate sale value achieved. Financial advice and planning can help you identify what price you need from the sale to do what you want in future, both for you and your family.

Experienced and trusted advisers for the deal and the future

Choosing the right advisers who are experienced and who understand both your personal objectives and the business is key.

Successful deal teams often include an excellent corporate finance adviser (to advise on strategy and price), corporate lawyer (to advise on deal terms) and accountant/tax adviser (to advise on deal structure). Their input will be vital and you’ll be spending a lot of time together so engage with them early to build up a relationship and let them understand your business.

On the personal side, private client specialists and wealth planners can advise on structuring options pre-sale and investment of sale proceeds. They can help you think about your family wealth and how you can develop an investment or philanthropic strategy, which will be important as this event can transform your life.

Tax and private wealth planning

Personal tax fundamentals to consider include:

• Inheritance tax: Prior to a sale, at present, there is scope to create and fund a long term vehicle using company shares to hold significant family wealth without a charge to inheritance tax (provided the shares qualify for inheritance tax business property relief). The planning is much more limited if you want to fund a trust using cash post sale. In addition, the rules in relation to business property relief are scheduled to change in April 2026, significantly reducing the ability to transfer business assets into trust pre-sale tax-free. There is a window of opportunity to act before the changes are introduced. After 6 April 2026, other options, such as family investment companies, may offer alternative efficient vehicles to hold family wealth in the long-term.
• Capital gains tax: business asset disposal relief can help to reduce the CGT burden on sale, but there are conditions which need to be satisfied throughout the two years before sale so it is best to consider this in advance. Other strategies can help to mitigate the tax burden, such as enterprise investment schemes or charitable giving.

Tax planning is complex. It can take time to change a company’s structure and to evaluate the optimal personal tax position before a sale. You should consider the structuring options before the sale process begins, so that you can focus on the transaction itself when the time comes.

Wills and LPAs

In case something unexpected should happen, Wills and Lasting Powers of Attorney should be in place and up to date to deal with death or incapacity.

Avoiding nasty surprises
You need to avoid giving the buyer any nasty surprises during its due diligence so you can retain control of the process and remain on the front foot throughout. Any unexpected issue will give the buyer leverage to renegotiate the price which it has offered, make it consider withholding some sale proceeds on completion, make the contractual terms of the deal far more onerous/stringent or, worse still, lead to the buyer walking away from the deal.

You should not underestimate the negative impact of any material issue arising during due diligence or disclosure on the balance of power in the deal negotiations. Trust between the parties is key. Unexpected issues can affect both deal certainty and timetable as well as lead to additional external cost and management time.

Legal mini-audit

One way to reduce the likelihood of surprises is to consider undertaking a mini-audit. The aim is to try to identify, and address, any problem areas by viewing the business from a buyer’s perspective, and asking “what is the buyer paying value for?”

Being able to give the buyer all the relevant information upfront will give confidence that it is buying a well-run and governed business and set the right tone for the transaction discussions from the start. It will also help you to maximise value by presenting a high-quality target. Certain issues regularly causing deal friction – if you can identify and resolve these before the sale process starts this will make for a smoother process and preserve deal value.

Key questions to consider include:

• Do any material contracts contain change of control provisions which would be triggered by the sale?
• Are all key contracts documented clearly?
• Are there any key contracts which will come up for renewal during the exit process?
• Are all intellectual property rights owned or used by the business properly protected/registered/licenced?
• Do directors and key employees have written contracts setting out the terms and conditions of their employment?
• What regulatory consents are needed to the sale?

Transaction perimeter

Ensure that the business owns or has the right to use all relevant assets before any process with the buyer commences. Trying to implement any pre-sale reorganisation once the sale process has started should be avoided if at all possible. The sale process itself is very intense so undertaking a reorganisation at the same time adds complexity, time, and ultimately cost.

Future management

Ensuring there is a clear line of management succession will enable you to step away from the business and secure the clean exit you desire. Without the next generation of management in place, it will be difficult for any seller to exit fully without an earn-out or an ongoing role.

Pressure and emotion

A sale process can be really intense, especially for the management team as there is a lot of hard work to be done in a highly pressurised environment. As a seller, you should not underestimate the emotion of giving up control of your business and the demands of due diligence, disclosure and the transaction process generally. Let your advisers perform their role and take the strain off you so you can continue to focus on the underlying business which is critically important.

In our experience, the sooner you start planning, the smoother the exit process will be.

If you are considering a sale, we would be very happy to have an initial meeting with you to discuss these issues at no charge, so please do get in touch with us.