When planning a business exit, there are several key factors to consider and documents to have in place.
In this article, Stuart Price, partner in the Commercial law team at Lodders, outlines the key essentials and points to consider when planning a business exit strategy for your business.
Essential points for an exit strategy
Valuation of the company
This involves assessing the current value of your business and planning how to both preserve and increase that value.
Exit options
These can be broken down into inside, outside, and involuntary exit options. Common exit strategies include merger and acquisition, selling to a partner or investor, family succession, management and employee buyouts (MBOs), selling the business to its employees (EOT), initial public offering (IPO), and liquidation.
Team formation
Form a team to help you prepare and execute your exit plan. Your team can consist of a corporate finance adviser, corporate lawyer, accountant, financial advisor, and business coach or implementation specialist.
Documents needed for an exit strategy
Non-disclosure agreement (NDA)
This protects sensitive business information during the exit process.
Information memorandum
A document which is produced prior to selling your business which is, in effect, your sales pitch to prospective buyers.
Letter of intent (LOI) / Heads of agreement (HoTs)
This outlines the terms of the sale agreed with a buyer. Only some aspects are binding. Most are non-contractual records of what the parties have agreed in principle.
Current and accurate financial statements
These provide a clear picture of the company’s financial health.
Sale and purchase agreement
This is the final agreement that outlines the terms and conditions of the sale.
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When planning a business exit strategy, what other further issues should you consider?
Succession planning
This involves identifying and developing new leaders who can replace old leaders when they leave or retire.
Exit strategy in business plan
Your business plan should include a section on exit strategies, preferably with both a Plan A and a Plan B if circumstances make your first choice difficult.
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More information
For more information, contact Stuart Price, partner. E: stuart.price@lodders.co.uk, T: 01789 339117
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