When it is time to go, exit gracefully and with a strategy Apr 21 2004

by Sian Elvis

AS THEY say, all good things must come to an end. It seems to be the season for fond farewells with some of our biggest TV favourites, Friends, Frasier and Sex and the City all but disappeared from our screens. But it's not just the TV producers who have to carefully plan an exit strategy. Sian Elvis, head of corporate commercial law at award-winning law firm Leo Abse & Cohen, gives us her top tips for planning an exit strategy for your business...

Whether you are starting a new business, looking for a new opportunity or simply dreaming of lazing the rest of your days away on the golf course, planning an exit strategy for your business should be a top priority.

It's never too early to start planning, even if you are right at the start of a new business venture - in fact that's the perfect time to get things rolling. Whether you are running a business as a sole trader, in a partnership or a shareholder in a limited company, you need to have a get-out plan in place.

If an exit strategy is considered from the word go, appropriate amendments can be made to the company or partnership documents to ensure a swift way out should the time come.

In the case of a limited company, amongst other things, changes can be made to the company's articles of association or a shareholders' agreement can be drawn up to make sure that shares of an outgoing party are first offered to existing shareholders which can be of benefit to all involved.

If you are looking to sell your business there are many accountants that will advertise your company or business for sale. But before you go down this route, it might be worth looking a little closer to home for the ideal exit plan - does the existing management team have the skills and experience to affect a management buy-out?

It might be that you have an effective management team that could support a buy-out but not take it forward. If this is the case, it might be worth introducing external management to join the team and carry out a management buy-in and buy-out.

Every business is different and what might make the perfect finale for one business may not be the answer for another - which is why it's so important to seek professional advice from the start.

Any sale, be it of assets or shares, will have tax implications for the seller so tax advice should be sought at a very early stage. Similarly, there are huge legal implications, especially surrounding the terms of the sale, so a solicitor should be appointed before this time. All too often terms of sale are agreed without legal advice and that can lead to a sticky situation at a later date.

For example, when a percentage shareholding is being sold in a company to an existing member, it's a common misconception that money within the company can be used to fund the purchase, which is in fact against the law unless certain procedures are followed. If a company gives unlawful financial assistance in the purchase, the directors can be subject to criminal proceedings and even a prison sentence of up to two years.

As well as careful planning and sound advice, it's critical that you make sure your housekeeping is in order. A prudent buyer will normally undertake 'due diligence' - the process by which the buyer will investigate the business or company for sale.

If you were trying to sell your house, you would make sure everything was neat and tidy when potential buyers came round and the same is true of selling a business. If certain parts of the business or company are not in order, it could cause unnecessary delays or even extra costs to the seller.

Your affairs will need to be straightened out before any sale and if things are not as they should be, a seller may find themselves being asked to give indemnities in the sale agreement. Indemnity clauses oblige the seller to reimburse the buyer for any costs they incur as a result of the matter not being in order- and this will eat into the sale's proceeds if enforced.

Selling your business can be tough. It's a difficult process, particularly if you started and nurtured the business, but with cautious planning and support, many of the frustrations encountered in a sale can be avoided and you will be on to your next business venture - or the golf course - before you know it.