Planning Your Business Exit

If you had to sell your business tomorrow, would it be sellable? Would anyone want to buy it? And if they did, would the money be enough to fund the life you want next?

Many business owners ask these questions only when they’re ready to sell, and by then their options are limited. A business that depends entirely on its owner is difficult to sell. A sale price that looks generous on paper can fall short once you realise how many of your living costs the business has been paying for. And how you are paid, whether as a lump sum or over several years, can matter as much as the price itself.

Planning an exit takes time, often several years. Here are some practical steps to help you prepare your business and your finances for life after the sale.

Make Sure Your Business Is Sellable

Before taking a business to market, you need to make sure it is properly prepared for sale. That means having the right processes, governance, systems, people and financials in place.

For many business owners, this is unfamiliar territory, so specialist advice can be valuable. The right consultant can assess where the business stands, identify gaps and guide you through the preparation process.

Ideally, you want someone who understands your industry, appreciates how important the business is to you, knows what prospective buyers are looking for and has experience preparing businesses for sale. A strong network of potential buyers can also be valuable.

Build The Right Team Around Your Exit

Preparing the business is one part of the work. You also need to understand whether the sale will support you financially after you exit.

One of my clients owns a winemaking business and, having decided to sell, she gave herself a three-year plan. Our role was to help her with the financial planning and answer two critical questions: Could she afford to exit on that timeline, and would she be financially secure afterwards?

We talked about what her next chapter would cost, what income she would need and the minimum amount she would need to realise from the business.

Having that information gave her the confidence to continue with the three-year plan and a clear understanding of the minimum amount she needs from the sale.

Understand What Your Business Pays For

Many owners have personal expenses running through the business, such as cellphones, internet, medical aid, insurance and subscriptions. The “salary” transferred into your personal bank account every month is therefore not necessarily a true reflection of what it costs you to live.

Once the business is sold, those expenses must be paid personally, which can change the income required after the sale.

Ask: What is the business paying for today that I will need to take over once I exit?

Your financial plan should take the full cost of your lifestyle into account rather than simply replacing the salary you were drawing from the business.

Internal Succession or a Third-Party Sale?

Owners can sell their business to a third party or hand it over through an internal succession plan. Both carry a great deal of emotion, but the way you are paid is very different.

Internal Succession

If an employee or management team takes over the business, they may not have the capital to buy your shares outright. The transaction may involve vendor financing, where the owner finances the purchase, and the buyer repays it over time from the business’s profits.

Advantages: You can remain involved for longer, reduce your role gradually and have some influence over how the business continues.

Disadvantages: You may receive your money over a number of years rather than as one lump sum.

Selling to a Third Party

Advantages: You may receive a capital amount upfront, allowing you to invest the proceeds, draw income, or reinvest elsewhere.

Disadvantages: Your involvement may end relatively quickly, as new owners will want to put their own stamp on the business. You need to be comfortable with that, financially and from a legacy point of view.

How Dependent Is the Business on You?

Finally, consider how much of the business depends on you. Think about the processes you have in place, the people around you, and what would happen if you were no longer there. If too much depends on you, that creates a challenge for whoever takes it over.

Look at where responsibilities can be shared and where other people can be brought in so the business can operate without your constant involvement.

Give Yourself Enough Time

Preparing a business for sale, understanding what you need financially, working out the right succession structure and reducing the business’s dependence on you can take years.

The sooner you start planning, the more opportunity you have to make changes and put yourself in a stronger position when the time comes to sell.