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Exit Strategy Planning

Having an exit strategy simply means having a plan to leave your business, one day. Whether you plan to sell and sail off into the sunset, or pass on to a family member, it’s worth planning well in advance – as well as thinking about continuity if you exit sooner than you expect.

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Do you need an exit strategy?
Whether you intend to leave your business in one, five, or twenty years, you’d be wise to make a plan now. It takes years, not months, to prepare a business for a new owner.

A business exit strategy will help you get ready. And it gives you freedom. If you’re ready to sell, you can do it at any time. That gives you options.

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Top tips for planning an exit strategy

1. Plan for your most likely buyer
If you’re selling to family, be transparent and open – that way you don’t cause family tensions that can rumble on for years. If you’re selling to staff, expect staged payments. with a deposit and payments as agreed from future business income. If you sell to the highest bidder, make sure your accounting and business records are in excellent order.

2. Decide how soon you want to exit
Some buyers, such as family or staff, won’t have the cash to buy you out straight away. You might have to stay involved, as a consultant or employee for some time before you fully leave. If you want a clean break, then the open market, using a Business Seller will suit you best.

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3. Get your books in order
Buyers will ask to see at least two years worth of clean and dependable financial records. If your bookkeeping isn’t up to scratch then get busy fixing the problems, so any potential buyer can understand the financials at a glance – or at least with the help of their accountant. If you can improve profitability then set about doing this as soon as you can – think of it as tidying up and getting the business books in the best possible state for inspection.

4. Make yourself less significant
A business that can operate without you is what buyers want. If you are essential to the business offering then no one is going to buy the company without you too. No one’s going to buy your business off you if it can’t survive without you. If you have staff, give them the training and power they need to succeed. By cutting back on your availability to customers and delegating more, you will be on the road to creating your exit strategy.

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5. Get organised and systems in place
Ensure you have formal processes all documented – so someone taking over can see how the operation runs, in relation to the financial figures – basically, if all other things are equal, and the new owner follows your system they can expect the same results. This also allows a buyer to see how they might cut costs or merge your business into an existing one.

6. Increase the value of your business
Know the strengths in your business and see if you can maximize them in order to add value to the sale price, and deal with any weaknesses. Your accountant can help with a basic SWOT analysis and help you pull out where the value lies.

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7. Get a guideline valuation
You won’t know what you’ll get for your business until the day it’s sold, but you can get a rough estimate. To get a professional opinion ask your accountant to introduce you to a local business broker or most accountants can give you a ball park guide. Once you have a realistic idea of what you could sell for it will help you plan your exit – you may need to adjust your timings or plan improvements.

8. Have a sales pitch
Everyone loves a story – make sure you can tell your business story so that a buyer is excited about where they could take the business. Gather your facts and figures to make sure the financials match the story. If you are pro actively planning your Exit Strategy think about business PR, the website and your marketing strategy – so all of these things can be of value to the next owner.

We thank our friends @Xero for the inspiration for this post and if you want to plan your Exit Strategy call us today.deathtostock_quietfrontier-12

Key Performance Indicators

What are the best ways to assess your company’s performance?

Changing market conditions and the UK position on Brexit make close monitoring of your business more important than ever.
Knowing your business’ strengths and weaknesses will help you manage your business efficiently.
There are various Apps that add-on to your accounts in Xero, to help you, and knowing where to start can be tricky. Here are our Tips to get you started on Business Performance Measurement.

Accountants and Xero Experts

 1. Think Cashflow

One of the biggest challenges is to ensure there is always enough cash to pay expenses when they are due, as running out of cash will threaten the survival of your business, more than any other factor.

Plan ahead – arrange an overdraft or invoice factoring well in advance of when you need it – to give yourself flexibility.
Keep a cashflow forecast – whether it’s scribbled down on paper or an Add-On App that takes all you accounting data and does the cash forecast for you, regularly reviewing and updating your cashflow forecasts will show the money flowing in and out of your business.

Do this on a monthly basis. Be aware of the flow, which means the actual dates you receive cash or have to pay someone for example paying PAYE Tax or Pension contributions weeks after you pay the staff.

Check your sales forecast and profits against your costs due and this should enable you to identify any potential problems before they arise.

How to make a profitable business

2. Profitability

Every business wants to increase profits. Here are some measures to consider;

• gross profit margin – the total amount after sales less direct costs
• break-even – the volume of sales needed to start making a profit
• net profits – the figure after all overheads, interest and tax deductions
• return on assets – the level of profit in relation to net assets

Measuring profitability should highlight areas for potential growth or under performing areas of your business.
Accounting ratios compare one aspect of your business against another. They make it easier to interpret financial statements by giving you a greater insight into your business’ performance.
Other important ratios to consider include:
• liquidity ratios – measures your business’ ability to pay its debts. Divide current assets by current liabilities. This tells you if you have enough assets to cover your liabilities when they fall due.
• efficiency ratios – measure how well you are utilizing your business assets.

Top tips from the cafe accountant

3. Customer

There’s no business with out customers who want to buy what you sell. Retaining existing customers is as important as attracting new ones, so treat them well and check if you are meeting their expectations. Know your client types, groups and top 5.

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4. Staff

The more successful you are the more staff you are likely to take on. Scaling up can mean fast training and cultural change. Set performance targets and development opportunities.

Another thing to consider is how your staff reflect the identity and brand of your business, particularly if they are dealing with customers. Even the smallest one person business has built an identity, usually based on the owners personality and attitudes – so match or train your team to stay true to what you want.

5. Benchmarking

Benchmarking measures your company’s performance against your competitors.  It enables you to find ways to improve performance and understand different approaches to achieve best practice or keep up.

If your business is a member of a trade association, you may be able to access industry-wide statistics, or your accountant may offer a benchmarking service where you can be measured against other businesses.  Strategic benchmarking is about measuring yourself against the best in class performers in your sector. Most small business benefit from analyzing competitor data and finances that are in the public domain.

Any of the above can be done on a DIY basis if cash is a problem and you have the time and expertise. Or you can ask your Xero Accountant to advise on the best place for you to start.

Benchmark against competitors

6. The small things

Don’t forget – all things are possible from your financial data IF you keep your processing up to date. Paying attention to the little details and keeping up to date mean you can undertake analysis any time you want.

If you need help getting up to date and getting to grips with your business finances please give us a call.

Bookkeeping Matters

 

 

The sting in the tail of Dividend Tax

Dividend Tax – What you should know

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Sometimes when advice and guidance is given, you hear it, but don’t fully take on board the cash impact on you personally. No matter how many blogs, websites or Accountants Updates you read, relating to Dividend tax, if you don’t understand the cash flow impact of how this tax is collected, you could get a nasty surprise in January.

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Know when to pay HMRC the tax due on your Dividends

So here’s a simplified summary for 2016/17 tax year;

  • You pay tax on dividends over £5000.
  • This is a new tax from April 2016.
  • You can only pay dividends if your company makes a profit AFTER corporation tax is accounted for, and there is profit left to distribute as dividends.
  • To pay a dividend when the above doesn’t apply, is called an illegal dividend – Don’t ever to this, avoid at all costs, the repercussions go on for many years.
  • The shareholder, who receives the dividends, pays the tax and you pay it through a Self-Assessment Tax Return every tax year.
  • Dividend Tax rates vary depending on how much you pay as dividends.
  • You pay Self-Assessment Tax by 31 January and then have to pay 50% MORE TAX as a payment on account for the tax year coming – paid by 31 July… Ouch
  • So cash flow wise, you need to plan to pay HMRC the dividend tax in January and July each year. Your self-assessment tax burden has gone up.

Other things to consider are that you must usually pay dividends to all shareholders, assuming they all have equal rights.

To pay a dividend, there is a procedure you need to have in place. You must;

  • hold a directors’ meeting to declare the dividend
  • keep minutes of the meeting, even if you’re the only director
  • Issue the Dividend Voucher to the shareholder, which they keep for their personal tax records, such as their SA Tax return.
  • It doesn’t matter where you hold your directors’ meeting – the kitchen table is fine, but formality and business process will help you understand how to run your company properly, and the routine will avoid any comeback from other shareholders, should anything go wrong in the future.

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Dividend paperwork

For each dividend payment the company makes, you must create a dividend voucher showing the:

  • The date
  • Then company name
  • The names of the shareholders being paid a dividend
  • The amount of the dividend

You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records. There are on-line templates for dividend vouchers and some accounting software like Xero can create a dividend voucher.

You can find more guidance on running your company here

Get our Free Tax App on your phone here.

For more information about Dividend Tax or how to run your Directors Meeting call us on 01603 516304.

Top Tips from Shaper Accountants