Why entrepreneurs and business owners need an exit strategy

Despite this alarming statistic, it’s understandable. With 20% of businesses failing within the first year and 50% within the first five years – success itself is a formidable challenge.

What is an exit strategy?

An exit strategy is a business owners’ plan for selling their stake in the company to other investors or another organisation. Whether it involves part or all of the business, an exit strategy provides an opportunity to raise capital for future endeavours or support the next phase of life – retirement, for example.

Key considerations for exit strategies:

1. Business valuation: determine the value of your business.
2. Timeframe: estimate how long it will take to sell the business and get access to the capital.
3. Tax implications: understand tax consequences and how to exit the business tax efficiently.
4. Succession planning: assess whether the right people and skills are in place for a smooth transition.

Planning ahead is crucial, as addressing these questions can be time-consuming and finding the right exit strategy based on the above can be difficult.

Read more: Which type of exit strategy suits your business needs?

What are the challenges that face business owners right now?

Being an entrepreneur or small business owner is a formidable challenge. They grapple with financial pressures and limited resources during the early stages, making it crucial to maintain a positive cash flow. In fact, 21% of survey participants from the report expressed their greatest concern was the possibility of their business failing.

Recent years have exacerbated these challenges. The macroeconomic landscape, marked by rising interest rates and record-high inflation, has introduced additional uncertainty, affecting the financial health of many small companies. As a result, numerous UK businesses have deferred their plans for business exits and succession.

Emotion also plays a significant role in succession planning (or lack of it!), particularly for family-run businesses. Entrepreneurs and business owners often nurture their companies from inception to profitability, akin to raising a child. This emotional attachment can make relinquishing control difficult, regardless of the business’s valuation.

Read more: How do entrepreneurs fund their business?

Why is it important to have an exit strategy?

1. Seizing opportunities: entrepreneurs often contemplate their next venture – the report revealed 50% of business owners and entrepreneurs have already started thinking about their next opportunity before exiting their current venture.

However, failing to release capital from your current business can hinder the ability to take up new opportunities. Without an exit strategy, you might miss out, or resort to short-term funding which can be more costly.

• Ensuring business as usual: succession planning matters, especially for family-owned businesses like restaurants and coffee shops. While owners may want to pass the enterprise to their children, differing career aspirations could impact day-to-day management of the business.

• Avoiding procrastination: business owners—especially those over 50—should prioritise planning their exit strategy, as the ‘Great Wealth Transfer’ is expected to see £5.5 trillion passed down between 2022 and 2050. Seeking expert guidance can be a valuable investment for a managing the future and ensuring the business can be passed on in the most tax-efficient manner.

Working with Charles Stanley

At Charles Stanley, we offer professional advice and work alongside multiple partners to help effectively manage your finances. We offer planning across the generations with both personal and business finances fully considered.”

Our experts are at hand to provide a financial planning perspective to business owners and their advisers as they decide the best way to fund their business. We work with legal, tax, and accountancy teams to help owners structure and manage owner wealth outside their business and ensures that a wealth plan aligns with a holistic plan for life including philanthropy, new business causes, and personal life and retirement

Download the report today – the UK’s landscape for business exits