Hawkey - Exit strategy planning: grooming your business for sale or succession

Exit Strategy Planning

Exit Strategy Planning

Grooming Your Business for Sale or Succession

JOHN HAWKEY

First published 2002 by Gower Publishing

Published 2017 by Routledge

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Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright John Hawkey 2002

John Hawkey has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.

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British Library Cataloguing in Publication Data

Hawkey, John

Exit strategy planning: grooming your business for sale or succession

1. Sale of small businesses 2. Business planning 3. Small business - Finance

I. Title

658'.022

Library of Congress Control Number: 2002104534

ISBN 13: 978-0-566-08498-0 (hbk)

Typeset in 9 point Stone Serif by IML Typographers, Birkenhead, Merseyside

Contents

I first became interested in exit strategy planning (ESP) in 1989 in Australia and started to develop a specialised ESP programme in 1991. Since that time, I have had assistance from many quarters.

In Australia I would like to thank Ross Honeyman for his ideas, especially about how ESP should be integrated with personal financial planning; Keith Pfaul and Eddie Cohen who first worked with me on introducing the programme to private business owners; the New South Wales Chamber of Commerce who supported the programme from the beginning by holding seminars on the topic for their members; people too numerous to mention from the AMP Society with whom I worked on producing an ESP programme for their self-employed agents; and Tiara Hini my secretary who spent hundreds of hours working on the consultants manual (which is the predecessor to this book) and deciphering my handwriting.

Since returning to the UK in 1999, I have received great help in finalizing the contents of this book from various people and organizations and I would specifically like to thank the following: John Fairhurst and Sons who helped me with the taxation appendix; Malcolm Fortnum who provided an insight into the workings of MBOs in private businesses in the UK; my good friend Maurice Glover who assisted me with the material on insolvency and ceasing to trade; and my colleague Geoffrey Winnard who has assisted with various parts of the book and developed with me the capacity to provide ESP consulting across the UK.

Last, I thank my wife Gillian and my daughter Carmen who have supported me unstintingly throughout the long period of gestation of this book and my mother, Patricia Bradshaw, for assisting me with the proof reading.

John Hawkey

Millington 2002

The story of Bill and Carol, typical private business owners, who did not plan for the disposal of their business and who paid the ultimate price for their lack of planning, demonstrates why exit strategy planning is so important.

The story of Bill and Carol

Bill and Carol started their business in Coventry in 1975. In the beginning it was run from Bills garage where he repaired washing machines. Carol looked after the accounts side of the business.

Three children and 20 years later, they had expanded to general manufacture of white goods components. The business turned over 1 million p.a., employed 15 people and made an annual profit before owners drawings of 120,000. Their daughter was employed in the sales department, but their two sons were not in the business. Their savings were modest, as they believed that they could sell their business for a large capital sum for their retirement.

They had been conscientious, if slightly unsophisticated, managers. They had brought in consultants from time to time to advise them on their business planning but, usually, after a little while, the process was forgotten and the business plans gathered dust.

In 1997, Bill and Carol decided the time had come to sell. They were both in their late fifties and were very tired of the long hours and pressures involved in being small business owners. Turnover was beginning to drop and profitability was also falling.

Their two sons were not interested in the business and their daughter was soon to start a family and did not want to take on any further responsibilities. Their only option to dispose of the business appeared to be a trade sale, probably to a competitor within the same industry. They had never considered any other method of disposal, such as selling to their managers or employees, and had not groomed anyone within the business who could take it over. They hoped that the sale of the business would realize enough to pay off the mortgage on their commercial property, leave them enough to give something to each of their children and to retire in comfort.