Tag Archive: Exit Strategy

  1. Sole Trader, Partnership or Limited Company?

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    Too often when an entrepreneur is starting a business the excitement and enthusiasm is focused on just getting it going and building the business. They will jump into action without necessarily thinking too much about the legal structure of the business or the type of business we are creating. This is especially common for people who are just keen to strike out on their own.

    There are however several ways to create a business. The most common in the UK are:

    • Sole Trader
    • Partnership
    • Limited Company

    Sole Trader

    When deciding to create your own business in the UK you would probably consider setting it up as a sole trader or a sole proprietor. It is one of the most popular business types for ‘one man band’ operations because it is very easy to set up. You as the sole trader retain full control and ownership. You own all the assets of the business and any profits made. On the flip side, you are also responsible for all the debts and liabilities the business accrues.

    Although easy to establish there are significant drawbacks to setting your business up as a sole trader. The biggest drawback is around liability. As a sole trader, the business is not a separate legal entity to you as an individual. This means that if the business gets into debt or the business is sued you are personally liable. Worst case is you could lose your own personal assets such as a home or your savings etc.

    Partnership

    A partnership is the business structure often chosen when two or more people go into business together with the intention of making a profit. It’s always wise to create a formal agreement between the partners to set out the terms of the partnership.

    Partners share the decision making, any profits the business makes and also any debt the business accrues. If the business runs into trouble both partner’s personal assets may also be at risk. Also, as there is no legal entity, once the partners retire, die or move on, the business ceases to exist.

    There is another type of partnership that exists known as a limited liability partnership (LLP). This ensures that the individual partners are not personally responsible for the debt the business accrues. The partners still share the running of the business in the same way as partners in an ordinary partnership, but avoid the personal risk to their own finances in the same way as shareholders in a limited company avoid personal liability. The other main difference is that limited liability partnerships must be registered with Companies House.

    Related Article: Why is a business Exit Strategy so important?

    Limited Company

    When it comes to limited companies it’s easy to assume that they are only appropriate for the big companies or for businesses where there are multiple partners. However, changes in UK law means that a single founder can create a limited company and own 100 percent of the shares. Alternatively, one or more partners can form a limited company by registering the business with Companies House (UK registrar of companies) as ‘limited by shares’ or ‘limited by guarantee’. When a company is ‘limited by shares’ they are owned by one or more shareholders and managed by one or more directors. Limited by guarantee companies are owned by one or more guarantors and managed by one or more directors. The same person can be the owner and director, so you can set up a company by yourself or with other people. Each partner (or shareholder/member) is then allocated shares in the company. If they are equal partners then the shares are equal, if there is a less active partner then the share allocation may be altered to reflect that.

    There are many advantages of forming a limited company over the other forms of business. For a start, the business becomes its own legal entity which means that it will survive beyond the life of the business partners. This is very important if you have an exit strategy that involves selling the business.

    Related Article : How to get your life back as a Business Owner

    With a sole trader or ordinary partnership, as profits increase you will be subject to higher personal tax rates. However, if you set up a limited company from the outset the business will pay corporation tax (20% in 2017), making it much more tax efficient.

    Obviously, it’s always wise to speak to a professional about your plans so they can help you make the right decision but if you plan to create a business that you may one day sell then a limited company is almost always the best option.

    Contact me for more information on how I can help you to make the most of your business.

  2. Why is a business Exit Strategy so important?

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    Whatever it is, there is a reason why you started your business. Maybe it was to build it up, sell it, retire young and set sail into the sun or work on your golf handicap. You may have the dreams, but do you have a business Exit Strategy?

    My dream when I started my company was to be free to travel the world whenever I wanted and to wherever I wanted – all the time! Shortly before I started my business, I had backpacked around the world for a year and had the most amazing experiences of my life. I had joined an unofficial club and I had well and truly caught the travelling bug. The opportunity to create a new business came unexpectedly but with a new and more relaxed outlook on life, I turned the opportunity into reality. From that day on, I was clear in my focus that the business would provide and opportunity to give me the financial freedom to be able to travel the world forever. And it happened!

    It’s All About Planning

    If indeed you want to retire at some stage then planning your exit strategy is as important as planning the business success. And having the final goal /dream in the back of your mind is key to pushing you to make the right decisions along the way.

    Achieving business success is not plain sailing and business leaders face many challenges. Some will fail. In fact, it was reported by ‘Ormsby Street’ that 4 in 10 businesses would fail in the first few years. To grow a successful and profitable business takes time, especially if the nature of the business is labour intensive. It is not easy and it will drain energy from you. You can never really detach yourself from the business and no matter what you’re up to, you will always be thinking about work in some way. Thinking of the business idea is the easy part, even starting a business is simple compared to the difficulties you will face trying to run it.

    Exit planning is something you should do years before you actually hand over the keys to your business. You should create a vision of what you want to happen in the business, how big it will be, how many employees it will have, the geographical locations it will operate, the types of customers, the financial results, and what it will be worth. A clear understanding of this will help you to create a well put together strategy of how you will actually make this happen. You are effectively Designing Your Destiny.

    A good exit plan will help you to drive your company to greater success. Understanding your plan will help you to make the right decisions and even more importantly, let go if the things that are not important. Getting involved in the trivia is something that too many business leaders do, and it causes undue stress and takes up way too much time that should have been allocated to the important task of running the business. Knowing your exit plan will keep you focused on the priorities and get you to your goal a lot quicker.

    Find a Mentor

    Using a business mentor is an excellent way to building your exit strategy. Rather than trying to learn things the hard way, you can tap into their wealth of experience and set a robust strategy that gives you confidence. In fact, using a good mentor throughout your business journey is an investment well spent. I would always suggest that you use a mentor who has actually led a business to sale and exit rather than someone who deals in theory. Working with a fellow entrepreneur who understands exactly the position you are in would be the best route.

    Buyers want to buy a business that will stand on its own two feet so that they know that when they took over it would still be able to be run when you left.

    Building a management team is the key to this. It will generate new ideas and energy, and will help you to build your business quicker. You will create a layer of staff who can take responsibility and be accountable for their element of the business. You will delegate many of the tasks that you shouldn’t be doing and you can focus on the strategy – the exit strategy.

    Related Article : Make Money While you Sleep

    When I built my exit strategy, I found that I was enjoying running the business more. By building a good management team, and letting go of many of the tasks that held me back, I had more time to focus on what was important. I believe business leaders should be focusing 80% of their time on strategy, and looking for the next opportunity. When I learned this and put it into practice, I started to enjoy my role so much more. I allowed the management team to get on with what they were good at and had been trained on, and I focused on the high level elements only, and got back to my entrepreneurial ways of thinking of new ideas.

    Business leaders who have already started planning their exit route, tend not to get so stressed, as they have already passed on the responsibilities to their management team. They have a belief that they will be ready to leave the business when the opportunity comes, knowing that they have a strong team developed that will continue to run the business very effectively into the future.

    Everything that arises, passes by. At some stage you will need to leave your business. Doing it under your terms is a lot better than being forced to do it from unfortunate circumstances or outside pressures. So start planning your Exit Strategy now.

    Contact me for a free initial consultation on how I can help you to build your business and exit strategy.