All of us who are running businesses will one day exit that business, that’s undeniable! However, are you building a business just to give yourself income, or are you building an asset? For most, the answer is both. You want (or need) income, but you also one day hope to realise the value of the asset that is your business.
Planning a business exit strategy is simply about deciding what the business needs to look like in the future so that you can maximise the value from it. Whether you’re a seasoned entrepreneur or a new business owner, understanding and preparing for the eventual transition out of your business is essential; there are numerous exit strategies available, each tailored to different objectives and circumstances.
In this article, we’ll explore what an exit strategy is, why it’s vital, and the various options available to help you achieve your exit goals.
An exit strategy is a carefully crafted plan that outlines how a business owner will transition out of their company. This could involve selling the business, transferring ownership, or even closing the company. While the idea of leaving a business may seem distant or even daunting, having an exit plan in place is crucial for both planned and unforeseen circumstances.
An effective business exit strategy ensures that your hard work yields maximum returns, aligns with your personal and financial goals, and provides clarity for stakeholders. Importantly, the type of strategy chosen can significantly influence business development decisions - from scaling operations to attracting investors.
Factors influencing your choice of exit strategy include:
There are many exit strategies available for business owners, each with its unique advantages and considerations, but here are some of the most popular:
Employee Ownership Trust (EOT): A fairly recent newcomer to exit options, but one worthy of consideration for a lot of business owners. The business is sold to a new ‘Trust’ which will then pay the shareholder(s) the agreed sale price from the cash in the business (if available). The Trust and the trustees’ objectives are to continue to successfully grow the business for the benefit of all employees.
There is a key advantage here for the outgoing owner; currently, under an EOT exit, NO capital gains tax is payable, although HMRC approval is required, conducted by a professional adviser.
Timing your exit is a strategic decision influenced by personal, financial, and market conditions. For detailed guidance, refer to our dedicated article on when is best to exit your business.
A better question may be “When should I start planning an exit”, and the answer is now, or in some cases, last year! Essentially, every owner should have an exit plan, if you haven’t got one, then start planning this now.
When developing an exit strategy, keep the following considerations in mind:
Exiting a business is rarely without challenges. Common hurdles you may face include:
At UK Business Mentoring, we understand that planning a business exit can be overwhelming. Our expert mentors have extensive experience supporting business owners across numerous industries, helping them navigate challenges and achieve their exit goals.
Whether you’re considering an M&A deal, family succession planning, or want to know more about EOTs, we’re here to help. Contact us today to kickstart a strong, tailored exit strategy for your business!
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