015 EXIT STRATEGY. HOW TO SELL YOUR BUSINESS.

In this episode, LCH/Wealth talks to Heather Darnell about all things exit strategy. How to sell your business, how to make it attractive to buyers, and how long it really takes to sell.

Heather is Founder and Finance Director at Ask The Boss. She has over two decades of experience as the external finance director for dozens of companies across industries, from skincare wholesalers to commercial real estate to groundbreaking technology firms.

https://www.ask-the-boss.co.uk/heather-darnell

Lisa Conway-Hughes is a Chartered Financial Advisor, a Fellow of the Personal Finance Society and is founder of LCH/Wealth.

Book a one-to-one Financial Diagnosis with LCH/Wealth here:
https://lchwealth.co.uk/lch_wealth_services/

Lisa regularly posts financial information, education and updates on her hugely popular Instagram account:
https://www.instagram.com/misslollymoney

This content is to be used for information and educational purposes only and nothing contained in it is or is intended to be construed as individual financial advice. Financial advice must only be given on an individual basis. If you require legal advice, financial advice or any other expert assistance, you should seek the services of a competent and qualified professional.

If you would like to chat about financial advice please get in touch with abi@lchwealth.co.uk who will arrange a meeting with the right person for you at LCH/Wealth.

Show Transcript

Lisa Conway-Hughes: Welcome to today’s episode. We’re talking all things exit strategy, and I’ve invited in Heather Darnell. She’s a very experienced Finance Director, and she’s been on the podcast before. So welcome to the show, Heather.

Heather Darnell: Thank you, Lisa.

Lisa Conway-Hughes: Let’s talk about selling and how to prepare for it. What are the first steps when it comes to planning, and how far in advance should that be?

Heather Darnell: Most sales of businesses take a long time. So if you’re thinking to yourself, “I think in six months I want out of here,” it’s never going to happen. If you’re lucky, it takes 9 to 12 months from when you decide to do it to when the cheque actually clears.

Lisa Conway-Hughes: Fingers crossed.

Heather Darnell: Exactly. And sometimes it’s a lot longer. It also depends if you’re doing a trade sale — selling to another company that does what you do — or if you’re selling to private equity, which is a completely different process. Or you might be selling to your own employees or another individual, and they’re all different. But in general, you should plan from the moment you start thinking about it. It’s not going to happen for another 6 to 9 months.

Lisa Conway-Hughes: Should you have the exit in mind when you’re doing your business plan early on, even in your first years?

Heather Darnell: That’s a really good point. Most people you talk to always say they plan to sell in five years. They say that in their first year, fifth year, and fifteenth year. So yes, it’s good to think that way. It’s great if you have a predefined path because you can tailor your business to make it more attractive to that ultimate exit.

And also, there’s nothing wrong with exiting your business by just shutting it down. There are some very tax-efficient ways to take out your retained earnings. So if you have an idea upfront, brilliant — you can make decisions along the way that make it easier for you in the end. But you don’t have to be a slave to it. You can always change your mind.

Lisa Conway-Hughes: Thinking about those first steps and getting ready for exit, you need to start thinking about how your ultimate purchaser is going to think.

Heather Darnell: Exactly, and they’re going to do a lot of due diligence on your business. You need to check that you’ve got signed employment contracts with all your staff, signed contracts with your customers, and ideally ensure that your customer contracts allow you to assign them if someone buys your business.

You’ll also want to go through every check a buyer will do, because part of the legal documentation when you sell is that you warrant certain things are true — and if they’re not, they can come back to you for money. So for your own sanity, you want to know what you’re signing up to.

Lisa Conway-Hughes: Do solicitors come and do an audit?

Heather Darnell: Usually it’s a combination of solicitors and accountants. Solicitors will check your commercial contracts — your lease with your landlord, for example — and tell you what a buyer will expect to see. Accountants, on the other hand, will go through your accounts and identify risks.

I’ve seen buyers say, “You’ve had R&D tax credits for the last four years — is there any risk in those claims?” If there is, they’ll reduce their offer.

Lisa Conway-Hughes: In case HMRC wants their money back?

Heather Darnell: Exactly. I’ve seen it happen — a buyer required the seller to redo tax returns, repay £40,000 to HMRC, and change future claims. So it’s better to get ahead of those questions. If you prepare early, you’ll look confident and professional rather than defensive, which keeps the price up.

Lisa Conway-Hughes: And how do you know when the right time to sell is?

Heather Darnell: It’s hard to predict the market, but you’ll have insight into your own growth. If your business is poised to expand — say into the U.S. or Europe — that’s a great time to sell. Buyers love potential growth. You don’t always need to execute that expansion yourself; sometimes it’s better to show you’re ready to, and let the buyer run with it.

Lisa Conway-Hughes: Overlying that is personal plans. A lot of my clients say they’ll retire at 50 or 55, but the reality is, people who build businesses rarely take a back seat.

Heather Darnell: So true. Your personal circumstances can change a lot. About five years ago, we expanded our company quickly, hired lots of young people, and I thought I’d be great at training the next generation. It was rewarding but exhausting. After some of them left, I realised I wanted to step back.

We found a happy medium — now some employees own part of the business and drive it forward, while I take a more strategic role.

Lisa Conway-Hughes: Like John Lewis.

Heather Darnell: Exactly.

Lisa Conway-Hughes: And did you decide in advance what percentage to allocate?

Heather Darnell: We did, but it took much longer than expected. There were legal and tax complications. What we ended up with wasn’t far from the plan, but it evolved.

Lisa Conway-Hughes: Were there any surprises?

Heather Darnell: Yes — tax. There are some excellent structures like EMI schemes or employee benefit trusts, but accountancy firms can’t use them easily due to HMRC rules. I learned that the hard way!

Lisa Conway-Hughes: What are the key variables in valuing a business?

Heather Darnell: Every industry is different. Some businesses sell for 1.5 times annual recurring revenue, others 5 to 8 times EBITDA — that’s earnings before interest, taxes, depreciation, and amortisation.

Lisa Conway-Hughes: Forget the last two always.

Heather Darnell: Exactly. Even though multiples have come down in recent years, they’re cyclical and will rise again. Currently, AI companies are commanding the highest valuations because of their perceived future potential.

Lisa Conway-Hughes: What factors affect valuations?

Heather Darnell: Buyers adjust historic profits to normalise for things like the owner’s salary or exceptional expenses. They care about consistent trading profits. Projections are often discounted, unless you can back them up with contracts or letters of intent — evidence makes your projections credible and boosts your value.

Lisa Conway-Hughes: What else makes a business more attractive to buyers?

Heather Darnell: Simplicity. Buyers love clean structures. If your business is split across multiple entities or if your trademarks are held personally, it complicates everything. The more streamlined you are, the fewer excuses a buyer has to lower the price.

Lisa Conway-Hughes: So selling is a bit like dating — you have to be prepared for heartbreak?

Heather Darnell: Absolutely. It’s rare that the first buyer you meet is “the one.”

Lisa Conway-Hughes: Should business owners consider who they’re selling to morally — making sure their clients and employees are protected?

Heather Darnell: Yes. Most founders feel a strong responsibility to their staff and clients. Schemes like EMI can reward employees and protect them. And remember, most sellers stay involved for a year or two after the sale to smooth the transition, so it’s important to like and trust your buyer.

Lisa Conway-Hughes: What about telling staff?

Heather Darnell: Don’t tell them too early. It’s disruptive and can create anxiety if the deal takes longer than expected. Selling is like another full-time job, so it’s better to keep things running as normal. If you need extra management to handle operations, it’s worth hiring support.

Lisa Conway-Hughes: Have you had any memorable success stories?

Heather Darnell: One of the most interesting was a tech company we helped sell to Apple. It was an “acquihire” — they bought the entire business just to hire two key employees.

Lisa Conway-Hughes: Incredible.

Heather Darnell: It was!

Lisa Conway-Hughes: Well, thank you, Heather. It’s been so insightful. And I just wanted to remind everyone that you and I are hosting a webinar together, going deeper into the process of selling a business.

Heather Darnell: I look forward to it. Thank you, Lisa.