Unless you’re planning to still be working on the same company into your twilight years, there will come a time when you eventually exit your business somehow.
As the end goal, you’d think that all company owners have an exit strategy in place. However, many don’t give it a thought, and it’s easy to forget about such things while things are going well.
Situations can change quickly though, and should market conditions or personal circumstances shift dramatically, it pays to have a contingency plan or at least some idea of your options.
Business exit strategies can take several forms depending on your circumstances, but in their most basic terms, they’re simply how you actually plan to leave your company. This could take the form of passing your business on to a successor or simply dissolving the business in an orderly fashion.
While they’re not mandatory, an exit strategy is still something every director should have. For one, they give owners a clear goal to work towards, which can shape your everyday decisions. Secondly, having an exit strategy in place allows you to avoid having to make big decisions under pressure should things take an unexpected turn.
Potential investors could also find your business more attractive with an exit plan in place showing a clear route to take regardless of who’s installed at the top.
Getting to the point where you can finally cash in all of the value you’ve created in a company is often the favoured exit route for directors.
The method they choose to sell with, however, can change depending on the circumstances.
Selling to another business in the same industry is the most common route to take. Rivals will have a strategic interest in your company which can help to inflate the price.
Selling to an existing management team will often see you achieve a smaller price than you might with a trade sale, but does, however, relieve you of the task of finding a buyer in the first place.
These see a trust organised by the company’s employees take control of the business. The main boon here is that the fee you receive is often exempt from Capital Gains Tax, creating a significant saving for many.
Many business owners still pass on their companies to friends or family members.
While this can often be the easiest route to take, it doesn’t generally yield the highest fees. There’s also the risk that your successor lacks the drive or skills to really succeed.
This route does allow you to groom your successor over a period of time, giving you the best chance of leaving the company in a familiar set of hands.
Not every company is sellable. If the owner is integral to the company, sometimes there is no business once the owner is removed. Occasionally, debts can also render a business practically unsellable too.
In these cases, an orderly closure that ensures nothing can come back to surprise you in the future is the order of the day.
This would usually take the form of either a dissolution or a liquidation. The former is useful if there are minimal debts, while the latter involves selling off all assets to pay off creditors before the business is closed for good.
Ultimately, the best route for you will depend on your goals, your situation, and timing.
A short, strategic conversation can often bring clarity around which route makes the most sense. If you’re interested in choosing the right exit route, I’m always happy to have a quick chat and explore what the right next step could look like for you.
You can find me on LinkedIn https://www.linkedin.com/in/chrisleadley/
Chris
