Exit Hacks – 7 Exit Pitfalls to Avoid

If you are considering selling your business, here are seven things to consider:

1. Not planning is the first mistake.  “Nothing comes from nothing”: It’s common sense. Sure, we’ve helped  businesses that had not planned, but we can count on one hand the number who achieved a decent sale as a result.

2. Planning to sell is the second mistake, instead of seeking investment for the future. Objectively assessing the buyer’s perspective requires critical analysis that can fundamentally change the approach to selling a business, so try to view it from the buyers perspective.

3. Assuming that others will appreciate the value of the business. Demonstrable proof is important and needs to be provided to obtain a decent valuation. The buyer is not necessarily going to be able to assess the resilience or predictability of your trading performance unless you tell them.

4. Leaving the prep until terms are agreed. The risk is you get caught out by terms that make subsequent negotiations more difficult. Moreover you lose the opportunity for value creation, which goes beyond deal preparation to avoid legal and regulatory pitfalls as explained in our article.

5. Ignoring tax planning measures. You should be able to organise your tax affairs to take advantage of the current tax regime and reliefs. This is not evading tax, merely navigating the current tax system. The most obvious example is business asset disposal relief (‘BADR’ or sometimes referred to by its old anime ‘entrepreneurs relief’), that reduces the tax on gain on sale of the first £1m to 10%. Depending on your and the circumstances of the transaction, the tax on the disposal of your business can be reduced or payment delayed further through additional reliefs. Conversely, if you get it wrong, you can pay much higher taxes up to the additional rate of tax of 45% or even have to pay tax before you receive the proceeds to pay it.  

6. A non-competitive deal process. If you do not organise  a deal process to create competitive tension you will probably leave money on the table.

7. Uncertainty over future earn outs. The negotiation of the share purchase agreement should minimise uncertainties but agreeing to head of terms earlier that have not been thoroughly assessed can weaken your negotiation position. Getting this wrong can easily give rise to costs being incurred unnecessarily, significant variations from the agreed headline value and non-payment of deferred consideration.

HOW WE CAN HELP: We support clients with an integrated, flexible and structured approach, applying both commercial experience and professional expertise. Our recent transactions have included exits, acquisitions and fundraising, with journeys from seed via private equity to assisting publicly listed companies. If you want to know more about how we can help you, get in touch for a free and confidential consultation on hello@linkstoneadvisory.com

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