Business exit planning: what to do five years before you leave

“I would like to sell in about five years” sounds like a plan. It often leaves the difficult decisions untouched.

Who will run the business? Which customers would stay after you leave? What will the business need to earn? How much of your wealth do you need to take out, and how much risk would you accept to get there?

Five years gives you time to work on those questions. It also gives you plenty of time to postpone them.

I would start by identifying the changes that need a track record. A manager needs time to prove they can run the operation. A new customer base needs time to become meaningful. Better financial reporting needs enough history behind it for someone to understand the pattern.

Those are useful improvements while you still own the company. They can also give you more choices when you decide to leave.

Define the life and business arrangement you are aiming for.

“Exit” can mean a complete sale, a partial sale, a transfer to management, a family handover or stepping back while retaining ownership. The options have different implications for control, ongoing work, funding and risk. The British Business Bank describes several possible exit routes.

Write down your own requirements before choosing a route. An owner who wants a clean break has a different problem from one who wants to stop managing people but keep an investment in the company.

Discuss financial requirements with your personal adviser. Then translate them into questions the business plan can address: how much value might need to be realised, how much cash must be available immediately, and how much uncertainty can the household tolerate?

Include the other shareholders. If one plans to retire and another wants to expand, the business may need to fund two different ambitions. It is better to discover that while there is time to consider the alternatives.

In the first year, establish a reliable starting point.

I would want an honest view of earnings, cash, customers, capability and dependence on the owner.

Begin with the financial information. Can you explain how sales become profit and how profit becomes cash? Are the underlying measures consistent? Can your team tell you which products, projects or customers generate attractive returns after the work required to deliver them?

A business can produce accurate statutory accounts while its management still lacks those answers. The reporting needs to support the decisions ahead.

Then investigate concentration. A large customer is not automatically a bad customer. But the effect of losing it should be understood. Look at margin, contract terms, renewal dates, switching costs and the relationships supporting the account.

Finally, examine the owner's job. List the work you perform, the decisions you retain and the knowledge that exists only in your head. Include the quiet interventions: reassuring a nervous customer, persuading a supplier to extend terms, resolving a disagreement between managers.

Someone will need to perform that work, change how it is done or remove the need for it. Each option takes time.

Make the second year about the quality of growth.

Revenue growth deserves a financial explanation. What additional margin will it generate? What cash will it absorb? What new people, equipment or management time does it need?

Consider an invented example. A company wins a £1.2m annual contract with a projected £240,000 contribution before shared overheads. It also needs £180,000 of cash before collections catch up, £90,000 of equipment and a senior manager whom the forecast has only partly allowed for.

The contract might still be an excellent opportunity. But an owner planning to leave needs to understand the funding, the eventual return and the additional dependence it creates. The revenue announcement alone cannot answer those questions.

I would compare growth opportunities on five dimensions: contribution, cash requirements, management capacity, concentration and repeatability. A smaller opportunity may be easier to fund and manage. A larger one may justify the investment. The analysis should make that choice visible.

Review your pricing as part of this work. Historic relationships sometimes carry historic prices long after the cost and complexity of delivery have changed. Examine the facts before making blanket increases: scope, service levels, usage, rework and payment terms may all need attention.

Record the decisions and follow the outcomes. By the time a buyer or successor asks how growth happened, the business should be able to explain the commercial choices behind it.

Build management capacity before the handover depends on it.

Recruiting someone with a senior title is only one part of the job. They need clear responsibilities, authority, information and an agreed way to escalate decisions.

Suppose you appoint an operations director but continue to approve every hire, negotiate every important supplier issue and intervene whenever a customer complains. The organisation chart has changed more than the operating model.

I would choose specific decisions to transfer and agree the boundaries. What expenditure can the manager authorise? Which commitments need board approval? When should a commercial exception come to you? What information will you use to review their judgement?

Expect some decisions to differ from the ones you would have made. If every difference leads to you taking control back, your successor has little opportunity to develop.

Allow for the financial effect too. A stronger management team can reduce near-term reported profit through higher employment costs. Evaluate that investment against the work transferred, operating performance and your objectives. It is not automatically value-enhancing simply because the new hire is expensive.

Use the middle years to test whether the changes hold.

Once you have better reporting, stronger managers and a clearer commercial model, test them under ordinary business pressure.

Can the team handle a major renewal? Can it respond when a forecast misses? Can it manage a difficult month without you becoming the default solution to everything?

A planned period away from the business is useful, provided you agree in advance what warrants contact. Review the exceptions afterwards. Did someone need information, authority, experience or access to a relationship? That gives you the next improvement task.

The same discipline applies to systems. Move knowledge into shared records, make the owner of each process clear and check that another person can pick up the work. A system is more transferable when its users understand what it is doing and how to resolve a problem.

Technology belongs in the plan where its economics and controls make sense.

I would be interested in AI that reduces the time spent collecting information, helps the team identify inconsistencies or makes established knowledge easier to find.

Start with a bounded task. For example, assembling source documents for the monthly finance review. Measure the time required, the corrections needed and the effect on the review itself. Check access to information and who remains responsible for the output.

Then look at the commercial consequences. If a tool saves time, will that time reduce cost, improve service or create capacity you can sell? If customers expect lower prices because work has become easier, what happens to your margin? If your service becomes easier to replicate, how will you remain useful to the customer?

Those questions help connect technology adoption to the business you intend to transfer. A collection of subscriptions is weak evidence of improvement. A repeatable process with measured results is much more informative.

About two years from the intended exit, review the route against the facts.

Your original preference may still make sense. It may also need to change.

Perhaps the management team is capable but cannot fund the purchase on acceptable terms. Perhaps the family wants to retain ownership but needs an external managing director. Perhaps an external buyer would require more of your time after completion than you want to give.

Compare the routes using the same questions: cash, timing, future involvement, control, funding and continuity. Include an alternative if the preferred route proves unavailable.

Refresh the financial assessment using current trading and relevant market evidence. Avoid assuming that an improvement in earnings will coincide with a more generous valuation multiple. You can work on the company; you cannot set the conditions in which every buyer will assess it.

Ask the tax and legal advisers to review ownership and structure before the route becomes fixed. Requirements can depend on what has been in place before a sale. Revisit earlier advice as circumstances and rules change. HMRC's relief guidance illustrates why eligibility needs early attention.

In the final year, prepare to prove what has changed.

Bring the financial history, commercial records, management responsibilities and ownership documents into a coherent body of evidence. Explain material changes in reporting, unusual trading periods and the assumptions behind the forecast.

Review whether the intended timetable still serves the owner and the business. A deadline can focus work, but the fact that five years have passed does not settle whether a particular offer is acceptable.

If you begin a sale process, resource it properly. Management still needs to win work, retain customers and collect cash. Our 18-month sale checklist examines this later preparation in more detail.

I would keep the five-year programme under review through a small set of questions:

The review should lead to a short list of actions with named people and dates. Otherwise it becomes another meeting about eventually doing something.

Your next ninety days can be quite specific.

Agree the owners' objectives, establish the financial starting point and identify the three dependencies that would most concern a successor or buyer. Select one commercial improvement and one management responsibility to work on immediately.

For each, state what you expect to change and how you will know. “Improve delegation” is hard to assess. “The operations director will price and approve standard work within agreed limits, with exceptions reviewed monthly” gives everyone something concrete to implement.

You may eventually decide to keep the business longer. Better information, a stronger team and more reliable cash generation remain useful outcomes. They also make it easier to consider an unexpected opportunity without having to start preparation from scratch.

If you have a five-year ambition but the work has not yet begun, talk to Northbound about the first decisions. We can help connect the intended exit with the financial and operating changes the business needs now.