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Exit Strategies for Business Owners: A Comprehensive Guide

Written by Joe Hinton on .

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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.

What Is a Businesss Exit Strategy, and Why Do You Need One?

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:

  • Desired level of control after the transition – how long do you want to be involved?
  • Management and operational preferences for the company post-exit.
  • Financial and personal objectives.

What Business Exit Strategies Exist?

There are many exit strategies available for business owners, each with its unique advantages and considerations, but here are some of the most popular:

  1. Mergers and Acquisitions (M&A): In an M&A scenario, your business merges with or is acquired by another company. This strategy can provide a substantial payout and is often ideal for businesses with valuable intellectual property or market share. However, it’s a complex process requiring negotiations and due diligence and should be done with a professional adviser to guide you.
  2. Initial Public Offerings (IPOs): Taking your business public through an IPO allows you to sell shares of your company on the stock market. This strategy can result in significant financial gains and increased visibility. However, it involves extensive regulatory requirements and ongoing shareholder accountability. The vast majority of businesses will not get to the stage of an IPO.
  3. Management Buyouts (MBOs): An MBO occurs when your company’s management team purchases the business. This ensures continuity in leadership and operations, making it an appealing choice for maintaining the business’s legacy. The process may require external funding and clear agreements.
  4. Private Equity Deals: Selling your business to a private equity firm can provide immediate liquidity and access to resources for future growth. These firms typically aim to enhance the company’s value before reselling it, which may involve significant changes to operations.
  5. Family Succession Planning: Transferring ownership to family members ensures that the business remains within the family. This strategy requires careful planning, including training successors and addressing potential disputes. It’s an ideal choice for those prioritising legacy over immediate financial gain. The biggest barrier here is that family members have seen the work and long hours involved - and might not want that!
  6. Closing the Business: In some cases, closing the business and liquidating its assets might be the most viable option. This strategy ensures a clean break but might not yield as much financial return as other methods and, of course, does not realise any goodwill.
  7. 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.

When Should You Exit Your Business?

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.

Key Considerations When Planning an Exit Strategy

When developing an exit strategy, keep the following considerations in mind:

  • Understand Tax Implications: Research the tax liabilities associated with your chosen exit strategy.
  • Determine Business Valuation: Accurately assess your business’s worth now, and what it may be in the future, to attract serious buyers – this is best done via a professional adviser.
  • Consider Exit Goals Early: Define your personal and financial objectives to guide the planning process.
  • Decide on your Business Model: What does your business need to look like to maximise the sale value and make it attractive to prospective buyers?

What Challenges Might You Face When Exiting Your Business?

Exiting a business is rarely without challenges. Common hurdles you may face include:

  • Underestimating Time Requirements: The process can take months or even years to complete.
  • Difficulty Finding the Right Buyer or Successor: Ensuring the right fit is crucial for the business’s future success.
  • Emotional Attachment: Letting go of a business can be emotionally taxing, particularly the question of “So, what will I do after it’s gone?”.

Struggling With an Exit Strategy? Our Business Mentors Can Help You

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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