The UK tech sector continues to thrive with a combined market value of $1 trillion. Businesses in the North of England are a significant factor in its success with five unicorns already created.
This puts the Manchester tech sector fourth in the UK tech investment table, with £163m invested into the sector.
The sector can feel fast-paced with a focus on maintaining momentum and quick transitions to the next project. This often has an impact on the exit process. By favouring a quick turnaround, over implementing a long-term plan, the exit process can be disjointed for both the entrepreneur themselves and the business.
For the entrepreneur personally, selling their business is a life-changing event. The regular income they were used to will transform into one large sum of money. This is paired with a personal adjustment of deciding how best to step back from the role of running the company or staying on in the business they built with someone else as their “boss”.
Considering the exit process
Building a business exit strategy can be one of an entrepreneur’s best investments. But tech entrepreneurs may be fearful about the next steps for the business given the current economic and market uncertainty, particularly around the impact of higher rates on funding and buyout markets.
Despite the turbulence, today might be an opportune time to begin developing an exit strategy that’s right for the entrepreneurs’ personal circumstances.
Examining transition options
When considering the next stage of the business, an entrepreneur’s needs will vary depending on where they are in the business cycle. For example, the needs of a tech startup or scaleup founder differ significantly from a business owner involved in a generation-spanning family business.
As a result, owners should explore the various options available to them. These include an outright sale, an employee stock ownership plan, recapitalisation, or transitioning ownership to the next generation.
A pre-sale advisory team can provide sound professional advice for them personally, separate to the transaction deal team. The ideal team should include a wealth manager, a financial advisor, a lawyer, and an accountant. This will enable a team approach to spotting all opportunities and risks to ensure the planning is seamless when the transaction occurs.
Developing a strategic plan
When planning for the sale of a business, there are various considerations professionally, personally, and financially. Professionally, ahead of the sale, entrepreneurs should be continuously monitoring industry trends and business cycles to identify good timing for the sale. Seizing the right opportunity is key to maximising future investment opportunities. Additionally, fine-tuning the business model and building a trusted team of advisors to begin focusing on getting the best deal will be fundamental to the process.
Personally, founders need to prioritise their goals and consider their lifestyle and how they plan to occupy their time post-exit. This includes preparing family members for the transition phase and understanding their goals too.
Financially, at least one year before exit, entrepreneurs should start to consider and prepare for the next phase, this includes understanding what a target exit figure means practically and how this aligns with their goals. Giving ample time enables any relevant tax planning to be explored and the set up of appropriate bank accounts. This means everything is ready when the transaction moves forward and isn’t something considered last minute when time is of the essence to get a deal over the line.
Engaging wealth management support
One of the most important challenges for an entrepreneur is managing near-term financial needs against long-term financial goals. This may be particularly true in an environment like today where higher interest rates and signs of tighter lending standards are affecting exit strategies.
Engaging a wealth manager is a crucial step for business owners to ensure they are protecting their future. Having their input can help to make sound financial decisions both pre-sale and post-sale. Prior to the sale, this includes considering wealth transfer strategies that accomplish personal financial goals in a tax-efficient manner. Wealth managers create a framework for how entrepreneurs assets are managed and can support with cash flow modelling.
Post-exit, a wealth manager will help entrepreneurs to execute their financial plan and invest aligned to their goals. As life is always changing, there needs to be an element of flexibility so that entrepreneurs can be guided through the process to maximise their investments, overall happiness, and achieve long and short term plans.