Understanding your magic number when selling your business

Arguably the most important number when Business Exit Planning

When you start a business, your focus is undoubtedly going to be on the building blocks of refining your products or services, marketing them and making a profit. The idea of having a business exit strategy, in the grand scheme of things, might seem wildly optimistic or even a little premature from the outset. Yet, planning your business exit is one of the most important things you can do if you want to mould your business in line with your long-term vision.

This forward-thinking approach will allow you to able to ‘shape’ the business to attract the right opportunities and give you a clear roadmap in place that aligns with your long-term personal goals.

Business Exit Planning: Starting with the End in Mind

Understanding your own personal goals as a business owner is crucial when business exit planning. Ultimately, this all comes down to the question:

‘Why are you building this business in the first place?’

In other words, what is it that you want to achieve in the future when you’ve sold the business and what do you need financially to achieve a secure and fulfilled future?

This is how we calculate your ‘magic number.’ We use a very detailed cashflow modelling tool which helps us work backwards from your magic number to the present day, so you can clearly see where you are now and how much you need for your future – with important milestones mapped out along the way.

Knowing your magic number will help support every decision you make in your business, and when the time comes to sell, it gives you the flexibility to exit on your own terms, when the time is right for you.

Here are some of the questions we work through with our clients relating to both business and personal goals:

Business questions:

• What is your business worth today?
• What can you do now to increase the value of your business in the future?
• How can you maximise its value in the future?
• How might different exit approaches impact the valuation?

Personal goals:

• How much do you need to sell your business for to enjoy the lifestyle you want?
• What are your personal goals for the future, and how can the sale of your business support those goals?
• What kind of involvement, if any, do you want to have with the business after the sale, and how can you ensure a smooth transition for the new owners or management team?
• What kind of legacy do you want to leave behind, and what plans you can put in place to help the business continue.

Being clear on your personal goals and how your business underpins them helps you gain more control, and ultimately allows you to secure the best possible price for your business when the time comes for you to sell.

Business Exit Planning is a Journey

Business exit planning is not a project that’s done once and filed with your business receipts. It’s an ever evolving process and will very likely change over time. You can’t plan for everything, but the important thing is to always keep focused on your clear vision at the end.

Business owners who have a clear exit strategy mapped out, are better able to focus on building the equity and maximising their business value so they can exit on their terms.

The power of financial advice

It might be tempting to calculate your magic number on your own, but the cashflow modelling tool we use, provides a much more strategic and detailed view, and being able to talk it through with a financial adviser will also allow you to potentially benefit from money-saving strategies such as:

• Tax efficient profit extraction, including how you pay yourself as a Director and purchasing other items through your business such as a car.
• Strategies to allow you to pay less Capital Gains Tax when you come to sell the business.
• Maximising the capital allowance on a business premises, if you own it.
• Contributing to a pension through the business, therefore reducing your corporation tax bill.

Having worked with many business owners and helping to plan their exit strategy, we know that there is often a gap between what you might think is the magic number and what is more achievable when we have crunched through the numbers together. Sometimes it’s higher, sometimes lower – but having an experienced financial adviser to guide you can help you feel more financially secure and confident that what you are working towards is achievable.

If you would like to discuss how we can help you plan your exit strategy and find your magic number, please book a meeting here.

Download our free eBook: ‘Master the Art of Selling your Business on your Terms’ here.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Please note that advice with regard to exit strategy planning may involve the referral to a service that is separate and distinct to those offered by St. James’s Place.