Succession planning and exit strategy

Selling a business takes time if you want to maximise the price. While some people plan their exit strategy from day one, you take at least 12 months to prepare.

Your business will be more attractive and more valuable to buyers if you make it easy for them to take over. If your business can run when you're not there, then it will be easier for a prospective buyer to receive the income you are promising from the business.

Once the business is ready for sale, approach a business broker who specialises in selling businesses in your industry. They will assist in making your business more attractive to buyers.

This is always a difficult question, and the answer depends on how risky a business is.

For example, a business such as ladies fashion will normally only seek one times its net profit because it is risky; seasonal conditions or choosing the wrong labels can decimate sales. On the other hand, a business that has consistently produced profits over five to 10 years, and has excellent systems in place might sell for five times its net profits.

The most common multiple of profit is three times net profit. Generally speaking, buyers will pay more to get a business that regularly produces good profits.

Whether it's part of your succession planning or to keep employees motivated, there are several ways to bring an employee in as an owner, including:

• They can pay cash for the shares
• They can borrow from the company or owner to pay for the shares
• You can gift them the shares
• You can offer the shares at a discounted rate

There are different tax consequences for each of these scenarios which you need to examine carefully. You should also consider questions such as whether they will be an ordinary class of shareholder or a non-voting shareholder. The best option will depend on what you are trying to achieve.