Succession Planning For Owner Managed Businesses

• Published date: 04 January 2022
• Subject Matter: Corporate/Commercial Law, Tax, Family and Matrimonial, Corporate and Company Law, Contracts and Commercial Law, Sales Taxes: VAT, GST, Wills/ Intestacy/ Estate Planning
• Law Firm: Trowers & Hamlins
• Author: Mr Frank Cook and Jonathan Holloway

In a year of new challenges, exiting a business arguably remains one of the biggest challenges for business owners. It can be difficult to balance time between managing the current needs of the business and strategising for the future.

All business owners will transition out of their business at some stage, perhaps due to a change in priorities, to take up a new challenge or retire. Studies have shown that despite this reality a significant percentage of small businesses do not have an exit plan. This short article considers the benefits of having an exit plan in place and initial considerations for an exit.

Benefits of an exit plan

Planning an exit strategy early (for instance three years before an exit) can be useful and benefit a business in a number of ways, for example:

• it can lead to a smoother exit transition by pre-empting time consuming due diligence requests;
• reviewing and investigating existing business arrangements may identify areas for improvement in advance of an exit (for instance putting in place new employment arrangements or re-negotiating certain commercial contract terms). Or of any business shortcomings (for example regulatory non-compliance) which could delay an exit if discovered at a later point in time; and
• it may enhance the business' value, by improving organisation and efficiencies as identified above.

Initial considerations for an exit plan

• Putting in place an exit plan: thinking about questions including when an exit is to take place, the desired value of the business on exit and who the successor is intended to be is very important.
• Collating due diligence: often the most time consuming and labour intensive part of the sale process. A buyer of the business or potential investor will usually want to conduct a thorough process of due diligence before entering into a transaction. Due diligence will likely cover a wide range of...