As a business owner have you considered what an exit strategy will mean for your company? Do you know there are several different types of strategies that you could consider?
What is a Business Exit Plan?
An exit strategy is a business owners plan for leaving the business.
Having an exit strategy in place early on, even if you are not planning on leaving your business in the near future, gives your business a direction and helps you to prepare for the future.
Why should business owners have an exit strategy?
It is crucial to think ahead and a planned exit will give you more control to leave when you choose and maximise the benefits.
Planned exits are more favourable than an unforeseen one. If you have to leave unexpectedly or earlier than planned due to unforeseen circumstances such as health issues, you will have far less stress over the future of your business and investments if a plan is already in place.
You could also receive an unexpected offer for your business such as from a competitor which means that you consider selling earlier than planned. If this happens, you can follow your exit strategy which will help maximise the amount that you get from the sale.
A business exit strategy also allows you to liquidate more quickly if your current situation changes and you need to raise money quickly or if you choose to pursue a different business venture.
At Four Wealth Management, we offer a small business financial planning service to help business owners plan for the future.
What Business Exit Strategies could I consider?
There are several types of exit strategies. First you need to consider if you want an internal transfer to partners, management, family or employees. Or if you would like to have an external transfer to a buyer or if you would like to liquidate the company and assets.
A Legacy exit strategy is favoured by a lot of small business owners as a way to keep the business in the family and transition the company over to a child or another relative. You can get the chosen family member(s) involved in the business at an early stage so they have a thorough understanding of how the business works and they can also build relationships with your staff and existing customers to make the transition as smooth as possible.
Merger and acquisition
A merger and acquisition strategy is when one company buys another company and merges into one. It is not creating a new company, one company is simply absorbed into the other. It is a way to restructure an existing business and accelerate growth by increasing market share and customer base.
If you choose this to be your Exit Strategy you should work on making your company as appealing to buyers as possible. There is always the possibility that you will not find a suitable buyer and therefore you would need an alternative Exit Strategy as a backup option.
It will often be a competitor that buys your company so that they can take control of your existing customer base and experienced staff and increase their market share in your industry.
Business owners are often still involved with the company after they sell, usually as a business consultant to make the transition to a new owner as smooth as possible. This is a good solution for business owners who would still like some involvement in their business.
Management and employee buyouts
Employee buyouts are when those who already understand how the business works transition into a bigger role within the company. This allows for more flexibility in your exit strategy and you can choose how much or little involvement you have. This strategy will be beneficial for your customers as the new owners already know how the business operates and are likely to already have built relationships with the customers. You will also have peace of mind knowing that your business is in safe hands.
Liquidation involves closing the business and selling all of the business assets. This is usually not a way to profit from the business but is an easy way to move on quickly from your business.
When liquidating you need to keep in mind that you need to pay off any shareholders and eliminate all debts before closing the business.
Plan for the future
If you are creating a business plan or pitching to potential investors, you should have a clear exit strategy in place. You should also make sure that your financial reports are accurate and up to date to help maximise the valuation of your company.
For help creating your business plan or establishing your exit plan, contact a financial adviser at Four Wealth Management on 0117 973 0500.
*Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.