End game

According to research by accountants Robert James Partnership, while 20 per cent of small-business owners plan to sell in the next 18 months, 85 per cent have no formal exit strategy, which means they risk not being able to find a buyer. Tom Whitney reports

"Many owner-managers put a lot of hard work into building up their business only to throw away the possible rewards by failing to plan their exit," says Business Link Berkshire adviser Keith Steptoe.

"You should have exit routes in mind when you set up the business. But if you don't, you should start planning at least five years before the date by which you want to get out.

"A well thought-out exit strategy can help you market your firm to potential buyers, get the best price and end your involvement with as little disruption to the business as possible," adds Steptoe.

Write a plan

"Get your business valued so you know what it is worth at the moment," says Steptoe. "Many owner-managers have an inflated idea of the true value of their business. Decide when you want to leave."

Some people set targets such as annual turnover. Achieving such a figure gives the business a value and the owner an acceptable return once the business is sold.

Your plan should list key exit tasks under headings such as employees, tax, stock, premises, utility bills, equipment, suppliers and customers. Set a detailed plan of action and specific timescale for each.

Appealing to buyers

"Planning enables you to pick the right moment to sell - rather than being rushed into a quick deal," says Steptoe.

Knowing when you want to sell means you can control and shape your business so it is as attractive as possible to buyers just when you need it to be. For example, when sales are at a peak or when your order book is full.

Buyers will also want to see evidence of a well-managed business, with steadily increasing profits and potential for future growth.

Personal concerns

"Bear in mind that if your business is too reliant on your own skills, its value to a buyer could be damaged. You might have to stay involved longer than you might wish," Steptoe warns.

If you are a sole trader, the value of your business is likely to be heavily linked to your skills and business relationships. To get around the problem, it might be worth becoming a limited company.

Another important consideration is what you will do when you sell your business. Those with enough money - and a desire to - simply retire. Others sink their money into a new venture, lured by the challenges associated with creating another successful business. Some simply fancy doing something else. You need to know what you plan to do with your time.

"Ultimately, good planning is essential if you want to exit on your own terms, from a position of strength, rather than being forced into it because you need the money or can no longer continue your involvement," Steptoe concludes.