Why Every Business Owner Needs an Exit Plan

Most small business owners pour their heart and soul into their companies, but when it comes to planning their exit, many avoid the conversation entirely.

A survey by Capital on Tap found that 79% of business owners have no exit plan at all, despite 8% expecting to sell within three years. Over a third even admitted they had no intention of ever creating one.

So, why does this matter — and what happens if you ignore it?

Why Exit Planning Matters

An exit plan isn’t just about selling up. It’s about ensuring the business you’ve built can survive without you and that you achieve the best outcome when you eventually step away. Without one, you risk:

• Losing control over when and how you exit.

• Missing the chance to maximise value.

• Leaving employees, customers, and suppliers uncertain.

• Passing financial and legal headaches on to your family.

Investors, lenders, and potential buyers also look for evidence of forward planning. A lack of strategy can signal instability, making your business less attractive.

The Risks of Having No Exit Strategy

Owners avoid exit planning for all kinds of reasons:

• Emotional connection (35%) – It’s hard to picture your business without you, so many avoid the topic altogether. Unfortunately, this can leave you unprepared if illness, burnout, or sudden market shifts force your hand.

• Struggle to find a buyer (28%) – The more specialised your industry, the more planning you need to identify potential buyers and make your business transferable.

• Legal complexities (24%) – Without advice, shareholder agreements, leases, and contracts can slow down or even block a sale.

• Difficulty valuing the business (23%) – If the business relies heavily on you personally, or if records aren’t clear, the perceived value can be far less than you expect.

Ironically, avoiding an exit plan to “keep control” often means you lose it — and risk missing the opportunity to sell at peak value.

Common Exit Routes

When owners do take the time to plan, the most common strategies are:

• Selling to a third party (47%) – Ideal if you want to walk away with cash, but it means preparing for due diligence and ensuring strong financials.

• Passing the business to family – Popular with larger firms (74% of those with 50+ employees). While it preserves legacy, it raises succession and inheritance tax questions.

• Winding down – Common for young businesses, but surprisingly, 40% of established firms over 10 years old also consider this. It’s straightforward but often leaves brand and goodwill value untapped.

The problem? Even when a plan exists, many never act on it. One in five owners have never implemented their strategy, and 21% have never taken professional advice.

Selling Your Business: What to Expect

Exit planning isn’t just about when you sell — it’s about how.

Preparing for Sale

A typical sale can take 6–12 months. Key steps include:

• Getting your financial records in order.

• Reviewing contracts, leases, and intellectual property.

• Securing a realistic valuation.

• Engaging accountants, solicitors, or corporate finance advisers.

Deal Structures

Most buyers won’t hand over the full sum upfront. Instead, payments may be phased or tied to performance.

Example: A £10m sale could pay £5m upfront, with £5m spread over three years, dependent on hitting revenue targets.

Tax on Profit, Not Price

Tax is calculated on the gain (sale price minus your investment), not the gross sale price.

Example: Sell for £500k after investing £100k? You’re taxed on the £400k gain.
Complexities arise if shares were gifted or inherited, but reinvested capital can reduce taxable gain.

Capital Gains Tax and Reliefs

When you sell all or part of a business, CGT usually applies. The rate depends on whether your deal is treated as capital or income, your personal tax position, and your eligibility for reliefs.

Business Asset Disposal Relief (BADR)

Formerly Entrepreneurs’ Relief, BADR reduces your CGT rate to 14% on up to £1m of lifetime gains. From April 2026, this will rise to 18%.
To qualify, you usually need:

• A trading company

• At least 5% shareholding and voting rights

• Ownership for at least 2 years

Other Reliefs

Depending on your circumstances, you may also claim:

• Investor’s Relief

• Rollover Relief

• Holdover Relief

These can reduce or defer tax significantly.

Practical Action Steps

Exit planning doesn’t mean leaving tomorrow. It’s about preparing for the future, on your terms. Here are five steps you can take today:

1. Get your accounts in order – clear financials make valuations stronger.

2. Review shareholder agreements – avoid legal disputes down the line.

3. Speak to a tax adviser – check which reliefs you could be eligible for.

4. Define your ideal timeline – whether it’s 3, 5, or 10 years, clarity helps.

5. Have conversations early – with advisers, family, or potential buyers.

The Bottom Line

Exit planning isn’t about giving up — it’s about ensuring that when the time comes, you:

• Sell on your terms

• Maximise the value of your business

• Minimise tax costs

• Protect yourself against unexpected events

The earlier you plan, the more options you’ll have. Even if you think you’ll never sell, a clear strategy gives you peace of mind and flexibility for the future.

Categories: Insights