Everyone needs an exit strategy.  Even though you have no intention of exiting your business any time soon, it is important to think about the options and the strategies that will need to be put in place when you do decide to exit from your business.  We know your business is your “baby”, and you have put in the time and energy to grow your business to a successful and thriving entity.  However, everyone needs an exit plan and whilst there’s no set time to start thinking about the future, the sooner you start, the better.  Most of the initial questions which come up revolve around how, when and how much money can be taken out of the business.  To ensure you like the answers to those questions later on in life, it would be helpful to work out your exit strategy.  Hard as it seems, the exit needs to be thought about at the beginning.

From small, to medium to large businesses, exit strategies are largely similar.  So let’s take a look.

For smaller businesses, liquidation is one of most common options available.  It is the final close up of shop and selling off all assets, it is a very simplistic kind of exit strategy.  However, it has the lowest return to business owners.  The only money received is from the sale of disposed assets, being the land, equipment and/or inventory.  It is also good to note that if you owe creditors, they will need to be paid off first before you are able to claim the funds.

There is also liquidation over time, being the exact same option as above but over time selling off your assets, instead of selling them off at one big hit.  In this option it is typically done by taking out large salary drawings or dividends over a number of years before eventually winding up the business.  It is suitable for owners which do not want to expand their business and who do not mind the reduction of the value of the business.  Salary is taxed at a personal income level, while the profits made in the company increase the value of the business.

Selling your business “for parts” can be quite traumatic, especially if there is an option to keep your business in the family and ensure your “baby” lives on and provides for your family into the future.  There are many advantages to keeping your business within the family.  A smooth transition by preparing a family member for the role and staying on as an advisor is always an option.  When handled correctly.  As with any advantages there are disadvantages.  Any type of succession planning can lead to infighting among family members over ownership and participation.  Quite frankly some family members may not have the skills or management capabilities to deal with your clients and it could lead to significant losses.

Another option which may be in your interest is selling your business to managers and/or employees who are interested in buying your already established business.  One of the largest UK retailers, John Lewis is almost entirely owned by the employees and in the US this approach is incredibly popular.  Since employees already know the business in detail and have a vested interest, it can thrive.  Ultimately you have handpicked these employees to work for you based on their value to your business and it would only be fitting to trust them with it in the future.  Another bonus benefit for you would be the chance to keep a share of the business and stay on for support until you are happy to leave it in their capable hands.  With selling to employees it doesn’t have to be a complicated sale involving stock equity plan, it can be a straight takeover of the business with a purchase price.

A popular option exit strategy is to sell your business on the open market.  It involves putting the business up for sale for a certain price and walking away with this amount, much like selling a piece of property.  This option but it can be very difficult, with significant amounts of time taken to find a suitable buyer.  In the meantime there can be significant costs to the business as a result of the disruption and uncertainty.  It is a sad reality that many businesses may be valued and sold at a far lower price than anticipated.  The forward planning, it becomes possible to ensure your business has the appropriate systems and processes to be attractive to a potential buyer.

Another alternative is to sell your business to a competitor or another business.  Most of the time this can lead to better and quicker returns than any other option as the competing business may be highly motivated to purchase your business purely to eliminate the competition.  However, since the competitor may only buy the business to tear it apart, it could lead to the dismissal of all your employees, who have trusted you for many years. It would be wise to ensure any agreements entered into provide for the safety of your employees’ employment and other sensitive information.  For this exit strategy to be successful it would be a good starting point to sound-out potential acquirers before making any decisions.

If selling your business is what you want, another possibility is a merger with another business.  This can be a win-win situation where businesses save on resources by combining. It is an efficient and quick way to grow revenue.  Or if you are a dreamer and lucky enough, make it your ‘money bank’.  If your business is stable, has a secure marketplace with revenue coming in at a steady pace, then pay off your investors, find someone you trust to run it for you and sit back and enjoy your ownership and profits without having to lift a finger.  Unfortunately, making your business a ‘money bank’ is not as easy as it sounds, but it is possible.

There is no best exit strategy for any one business, as each exit strategy should be tailored to your business and your main concerns. Planning an exit strategy is better done in advance as you can plan your time and money accordingly, to maximise your best outcome.  You should not think of an exit strategy as your business hitting the rocks, you should think of it as succession planning.