By: Wendy Manjeya
For many business owners, the thought of exiting the company they have built feels like a distant and almost unimaginable reality. Yet, according to Michelle Geraghty, the Business Development Head at FNB Business Advisory, early planning and preparation for this eventual departure is not just advisable, it is essential.
Geraghty stresses that the process of exiting a business is a delicate two-step journey involving emotional readiness and strategic planning. “Exiting your business is almost always a very emotional decision,” Geraghty noted, underscoring the importance of pre-emptive groundwork to prevent emotional biases from clouding judgement. “To avoid those emotions clouding the decisions that need to be made about the exit, it’s vital that the ground has been thoroughly prepared well in advance,” she said, highlighting the necessity of involving trusted advisors early in the process.
“It’s essential that you have relevant discussions with trusted advisers, particularly your bank and a legal adviser.” These conversations helped create a clear picture of viable options and eliminated those that were unsuitable.
Geraghty said that stress-testing every aspect of the business was another crucial step. This comprehensive review included legal documents and governance structures to ensure they were robust and adaptable to change.
Once preparations were in place, various exit strategies could be considered.
These include:
- Sell the business outright – This straightforward option requires a realistic valuation approach, free from emotional biases.
- Phased exit – For businesses with strong balance sheets, this strategy can be beneficial. It involves the business paying out the balance of a large loan account to the departing owner over time, limiting tax liabilities and minimising financial impact.
- Partial management buyout – Senior management purchases a portion of shares from the major shareholder, providing cash for retirement and potentially including employee share participation.
- Private equity – This option is suitable for businesses with strong growth prospects and can involve selling shares to a private equity fund, extracting value from the business upon exit.
No matter the chosen strategy, Geraghty emphasised the importance of prudence and patience. She also stressed the need for frank and open conversations with potential successors to align visions and prevent misunderstandings. Ultimately the owner must approach exiting a business with the same care, dedication, and scrutiny as when it was first started.
