Legal

Planning for your future exit

By Andrew Skinner, commercial lawyer and director at Ulrich Milne Lawyers

1 November 2024

4 minutes to read

We spend a lot of time in business, planning for what’s in front of us this week and, maybe, the next few months. But what about planning for your future exit from the business and when do you start doing that?

This article summarises some of the key aspects you need to think about when preparing for the eventual exit from your business.  

When do you start planning for your business exit?  

As early as possible; ideally from the day you step into or acquire the business. The end goal of a successful sale of your business looks different for each one, but the planning needs to begin early.  

Decisions you make in your business can have an impact on your ability to sell in the future, and the price you will receive. When making important business decisions, you should always consider how this decision will be viewed by a purchaser in the future. Will a future buyer like this long-term lease? Am I keeping my business current with up-to-date IT systems can capability? Do I have good staff retention?   

Getting ready for sale 

To get the best return, your business needs to be in the best shape to look attractive to buyers. It is imperative you have a good track record of the last 2-3 years of accounts.  

"Timing is important, so be aware of the cycles of the construction industry. One of the most important factors for business owners to plan for is reducing the reliance on the owner in the business."

 

Ideally, you need to be able to demonstrate future sustainable earnings without your integral involvement. If you need to be on site every day sorting out issues, then how will a buyer feel about you not being around? 

When you are ready to exit, who are your prospective buyers?  

Many business owners do not consider who the potential purchaser for their business will be. There are several options, including: 

  1. a sale to another builder 

  1. a sale to a new entrant to the industry or 

  1. a managed exit via gradual sale to key employees 

Each of the above scenarios needs to be considered. The most appropriate option will depend on each business. The important point is to consider the various options and the likelihood of each occurring.  

What assistance will I need?  

Depending upon the most likely sale option you choose, you will likely need: 

  1. to have your accountant ensure the books are in shape 

  1. if you wish to sell the business, engage a business broker to assist and 

  1. legal advice with respect to your exit arrangements 

 Planning for your eventual successful business exit needs to start early. The more you have your business ready for sale, the easier the process is. Clients are often surprised (and sometimes overwhelmed) at the level of detail a buyer wants to inspect. It’s therefore important to remember decisions you make today can have a bearing on your sale in the future so it’s always a good idea to have a business exit strategy.   

Andrew Skinner, Partner - Commercial Law - andrew.skinner@uml.co.nz

Andrew Skinner has over 20 years of experience as a commercial lawyer. He is a director at the Auckland firm Urlich Milne and vice chair of the Frame and Truss Manufacturers Association.

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