A rush to the exit can hurt your profits

Kathleen Brooks
AFTER you’ve built a successful business you’re faced with a dilemma – what do you do now? You might stay and try to take the business to the next level, but what if you’re a serial entrepreneur or you have dreams of an early retirement?

If you want out then you need to come up with an exit strategy. Apart from letting go of something that you have built from scratch, economic conditions also need to be considered. So now that the UK is back to positive, albeit weak, economic growth, are the conditions right to sell?

It depends on the debt markets, says Patrick Reeve, founder and managing partner at Albion Ventures, a venture capital investment firm: “You need a decent debt market so that potential acquirers can easily fund any purchase of your business,” he says.

Debt markets were hit hard by the credit crisis, and although they have improved a little, lending by UK banks remains constrained. “Now is not the best time to sell. It would be better to wait until mergers and acquisitions activity picks up a bit before you think about an exit, ” says Reeve.

Simon Dolan, a serial entrepreneur and founder of SJD Accountancy, has been on the look out for companies to buy during this recession. However, he has found that the combination of tight debt markets and low interest rates have left many people unwilling, or unable, to sell.

“People will often sell their businesses when they think about retiring. But, with interest rates this low, it’s hard to retire early, say at 50, and then expect that the profits you make to last you maybe for the next 30 or 40 years if they are just in the bank,” says Dolan.

Even if now isn’t the best time to sell your business, you should still be planning your exit strategy, says Reeve: “From the beginning it’s worth building your business geared toward an exit so that any future investment is taken with an eye on whether it will create long-term value.”

Taking the plunge to go it alone and start your own business isn’t the only big decision entrepreneurs have to make. The exit process also takes time, effort and luck – you need the right economic conditions to ensure you get the best possible reward for all those years of hard work.