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Warning: Without Exit Planning, You Could Be Left With Nothing

Do you dream of selling your business for a very tidy profit so you can retire and spend your days on luxury cruises or working on your golf handicap?

Well, without an exit plan, your dream may be just that, a dream that never comes to fruition.

Sell at the wrong time or without thinking about the impact of taxation, for example, and you really could be left with nothing to show for your years of hard work.

Every tax adviser that we meet agrees that without appropriate planning, business owners could pay far more tax than necessary when exiting the company. With the correct planning of your exit, at least one year ahead, preferably far sooner, you can minimize, or sometimes even eliminate both capital gains and income tax.

You may also need to consider your partners, directors and managers as incentivising them with shares or options may be a way of aligning them with your goals on the sale of your business.

That said, it’s important to realise that selling the company is not your only exit option. You can also:

  • Transfer ownership to your children
  • Sell to management
  • Take your company public by listing on the stock market
  • Liquidate the assets and take the cash that is realised

Even if your dream is to pass the company on to the next generation of your family, you still need to plan how to maximise the value of the business so they inherit something worthwhile rather than burdensome. Otherwise, you’ll be lumbering them with something closer to a millstone than a prize worth having.

The same principle applies to liquidating or publicly launching the company. Your plan should be to maximise its value and therefore maximize your options for an exit.

An exit plan allows you as the owner to remain in control of the sale (or succession) process and focus the business on the most critical value-enhancing strategies before your exit.

You might think you’re too busy right now to create an exit strategy but time really is of the essence if you want to get the business in shape to exit.

You’ll need time to develop unique sustainable selling points so you can show prospective owners that the business will enjoy continued growth, you are selling the future, not the past.

When you talk about the company’s medium and long-term prospects to potential buyers, being able to demonstrate that you’ve already made inroads into new geographical markets or new product ranges or services will help strengthen your case. That will take time which again is why you need to develop your exit strategy sooner rather than later.

Equally important is to consider the possible threats to your business which could have an impact on the attractiveness and therefore value of your business. Such threats might include an adverse change in legislation or new and competing technology in your existing markets. You and your management team need to develop a strategy to defend the business against such threats where possible and that again will take time to design and implement.

Your potential buyers will expect at least two years’ of accurate information including monthly management accounts, margin analysis and tax position before they make any sort of offer. They should then conduct extensive due diligence into all aspects of the business in order to identify potential liabilities, risks and management expertise.

Fortunately, you don’t have to do this alone. In fact, it could be an expensive false economy to undertake any of this without first consulting exit planning experts. They can help you to:

  • Explore the exit strategies that will best serve your goals for the business and yourself
  • Evaluate the business’ current value and its key value drivers
  • Compare the business’ current value with the desired sale value (for individual owners this will be the amount of capital you need to underpin your future lifestyle needs)
  • Understand the future prospects for the business
  • Identify who the business will appeal to and why
  • Identify what may make the business unappealing to potential buyers and so restrict or negatively affect exit value
  • Clarify what you and your management team need to do in the short and medium term to improve the key value drivers and minimise the unappealing aspects to potential trade buyers, institutional investors or the existing management team

If you would like to read our exit planning guide, which explains the entire exit planning process and the considerations required of an SME leading up to and during an exit, you can do so by clicking here.

If you plan to sell, your team of advisors will also help you find the right buyer, ensure the buyer has the right finance in place to pay for the transaction, optimise your net of tax cash receipt after the sale and help you to plan your new post-sale life.

Planning a profitable exit doesn’t have to cost a fortune and nor does it have to take you away from running your business day to day. A part-time FD or CFO can help with exit planning strategies and advise you on the most suitable route forward. It’s what one of our part-time CFOs did for the original owners of Kiddicare, enabling them to sell to the supermarket giant Morrisons for £70 million (at a remarkable 20x profit multiple).

With the right exit planning, you too can realise some significant personal goals, create a retirement nest egg for you and your family and secure your future. But for that to happen, you need to take action today.

To find out how you can take on one of the country’s top Chief Financial Officers, but on a part-time basis, to help get your business into shape in advance of a potential exit you can watch our 3 minute video which explains the CFO Centre service.

The Finance Director Who Fired His Boss

I work with a team of 10 high calibre Finance Directors across the North of England.

Each of them is accredited by one of the major chartered Institutes and each of them used to work for successful companies as ‘traditional’ Finance Directors.

By traditional, I mean that each of them used to work as the sole Finance Director within a corporation, working Monday through to Friday (and weekends), usually from about 8am to 6pm.

This is what I refer to as ‘Plan A’.

There is however a ‘Plan B’.

Plan B starts with a positive decision to opt for a different type of lifestyle.

It involves working in the capacity of Finance Director, but for multiple companies, concurrently.

Typically for 2-4 days per client per month, covering 4 or 5 clients.

It’s a lifestyle choice, but without sacrificing income.

In other words, there is a great pay-off in terms of greater freedom, flexibility and time as well as a possibility to earn good money.

Our team of 10 Finance Directors across the North of England form part of the FD Centre – the world’s number provider of part-time FDs to SMEs. I work in the capacity of Regional Director, helping my team to win new clients, who don’t have a requirement for a full-time FD or the appetite for adding £100k+ to their wage bill!

The part-time FD model has caught fire over recent years with many companies ditching the traditional model.
If you like the idea of having more time, greater variety of work, more flexibility, more freedom and frankly more fun and have a track record of high achievement as an FD, I’d love to talk.

Maybe it’s time for you to fire your boss and take on a new and exciting challenge?

Andy Collier
Regional Director
North of England
The FD Centre
07944 662986
www.thefdcentre.co.uk

Rolling Back The Years…

Rolling Back The Years…

The comedian Barry Cryer tells a story about a Finance Director walking down the street. The FD is approached by a homeless man. “Excuse me, mate” says the man “can you spare me a few quid, I haven’t eaten for two weeks”? “ I see” says the FD “And how does that compare with the same period last year”?

Of course, no FD would be that heartless but the story also hides a deeper truth – most of us think in fixed periods of time, mainly years and months. This puts us in a situation where we measure financial performance by the distinctly non-financial yardstick of how long it takes the Earth to revolve around the Sun. This is understandable as we measure our lives in the same way – but is it the best way to plan a business?

There has been some movement away from the annual forecasting and planning cycle; I work with several businesses that use rolling forecasts , for example. According to a study by CIMA about 20% of businesses use them – but what do the other 80% do? Fixed annual forecasts, presumably.
The idea of a fixed annual forecast includes the following assumptions:

• A year is the ideal planning period
• We can get a good fix on revenues, costs and profits over that period
• We can reasonably predict how external economic, political and social factors will turn out.

Let’s think about this a little more. Why is a year the ideal planning period? What if we consider, for example, a five quarter forward planning period instead? Firstly this gets us away from what I call “the January factor”. By this I mean that a forecast is prepared and January, (or Q1), shows a marked change from the end of the previous year. Revenues shoot up; costs are magically under control.

In reality less changes in most businesses between December and January than at any other time of the year; staff, directors, customers and suppliers are all off for Christmas!

Yet this happens. Perhaps businesses, like people, make New Year Resolutions – and perhaps they break them too. The fact is, a business is a continuous process; the last quarter of one year flows in to the first quarter of the next. Businesses don’t stop and start with a jolt and unless we make changes they will stay the same, yet the planning process often suggests otherwise.

If we choose a different planning period we automatically start to look at the business in a different way. The selected forecasting period needn’t be longer than a year – we might wish a six or nine month period if we feel that this reflects the nature of the business. A restaurant might have a very different planning cycle from the manufacturer of Oil Rigs, for example. But the selection of an appropriate planning period is key.

This brings us on to the next part of the change in the planning process: if we break away from the notion of the annual planning cycle we can then take it to the next stage, rolling forecasts.

Businesses spend time and resources preparing annual forecasts that run January to December. That means that at the start of the year they look forward to the next twelve months of activity, but as the year progresses the horizon shrinks. Rolling forecasts enable the business to keep looking up and thinking about the future rather than focussed inward on a set of assumptions that are all too quickly outdated.

What underpins this idea is that in uncertain times (and I would argue that businesses always face uncertain times) the forecasting and planning process needs to be nimble enough both to predict and react to changes in the business environment. A rolling non-annual based forecasting process enables us to do just that. The non-annual part acknowledges that a business is a continuous process and the rolling part keeps it focussed on change and development.

This is not to suggest that the business should be purely reactive or incapable of setting long-term strategic objectives but that such a mechanism is the best way of reaching those objectives.

7 Habits of Highly Effective Finance Directors

Colin Mills – Founder & CEO, The FD Centre Limited (www.thefdcentre.co.uk)

So, to be a highly effective FD in your business, you have to be up to date on all the latest accounting standards, be really up to speed on the latest developments in tax legislation and spend long hours in your office reviewing reconciliations and signing off VAT returns. That’s right isn’t it?

NO.

Our experience over ten years suggests that highly effective FDs need a rather different set of skills to be effective and “make a difference” in the businesses they work for. With over 100 FDs providing FD services to a number of SME’s each on a part time basis, we understand what it takes to be a great FD!

Here are the top 7 Habits for effective FDs:-

1. Competence
2. “Bean Growers” not “Bean Counters”
3. Build a team outside the business as well as in it
4. Manage up as well as down
5. Communication is everything
6. Passionate
7. Sharpening the Saw

Competence
There’s no getting away from it that an Accounting qualification and experience gained being a real life FD counts for a lot. FDs will be judged initially on how well they keep the score, solve financial problems in the business and direct management attention to the things that matter financially. Although it starts here, this is not where it stops! Other key habits are:-
Bean Growing, not Bean Counting
Highly effective FDs should come with Business, Commercial and Strategic skills that are super strong. Super financial skills are merely a pre-requisite.

Team Orientation
Teamwork is key for the modern day FD. As well as the ability to build their own team, highly effective FDs must be able to work effectively with the management team of the business and develop relationships outside the business to provide a strong network of support professionals.

People Skills
“Soft skills” are the hard skills these days. Managing down, across and most importantly up to MDs and business owners is key. Being a great FD and doing the FD “stuff” is not sufficient in adding real value to the business. People need to be brought with you.
Communication
The way you communicate and get your point across is critical to making a difference. Influence and persuasion skills are massively important to be highly effective.

Passionate
Yes “passionate”. High energy levels and having some fun is an important factor in effectiveness. What FDs do is a serious business, but it doesn’t have to be dour, and nobody likes a bore!

Sharpening the Saw

Keeping fresh and finding time to keep up to date is vital in this fast moving world. This relates to all the effectiveness habits not just technical skills!

FDs who want to make a difference to their businesses should work on these habits to become highly effective. Those that can master all these skills will find themselves in very high demand!

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