Key points
- Eleven categories of exit risk.
- Understood risks are less damaging than surprises.
- Some risks are inherent and acceptable.
Every business carries risk. Before an exit, the aim is to understand it, document it, reduce it where practical and avoid surprises.
Exit risk framework
Owner risk
- Typical question a buyer or successor asks
- What happens when the owner leaves?
Management risk
- Typical question a buyer or successor asks
- Can the team lead without the owner?
Customer risk
- Typical question a buyer or successor asks
- How dependent is revenue on a few accounts?
Supplier risk
- Typical question a buyer or successor asks
- Could loss of a supplier disrupt the business?
Financial risk
- Typical question a buyer or successor asks
- Are earnings reliable, and is the balance sheet understood?
Contractual risk
- Typical question a buyer or successor asks
- Are key arrangements written, current and transferable?
Employee and key-person risk
- Typical question a buyer or successor asks
- Would losing one person damage the business?
Property risk
- Typical question a buyer or successor asks
- Are premises secure, and are they tied to the owner personally?
Regulatory risk
- Typical question a buyer or successor asks
- Are licences, permits and compliance in order?
Technology and cyber risk
- Typical question a buyer or successor asks
- Are systems secure, supported and owned by the business?
Shareholder risk
- Typical question a buyer or successor asks
- Are all shareholders aligned on the exit?
Must every risk be eliminated?
No. Some risks are inherent in the business or sector. In our experience, risks that are understood, documented and explained honestly are far less damaging than risks discovered late by a buyer.
This guide is general commercial information based on professional experience of UK SME transactions. It is not legal, tax, accounting or financial advice, and transaction-specific requirements vary. Take advice from appropriately qualified professionals before acting.