Understanding Business Exit Strategies

A business exit strategy is an owner's plan to sell their stake in a company to internal or external investors or another business. This strategy allows the owner to either reduce or eliminate their stake in the company and maximise the value of the business for higher profits if it's successful. A business exit plan can help limit losses if a company is unsuccessful.

Why is an Exit Plan Important?

A planned exit is preferable to one forced by circumstances. Planning lets you choose how to leave and groom the business for that specific strategy, ensuring a smooth transition while maximising the value released from the business. This also safeguards the future of the business you have worked so hard to build.

Exit Options for Your Business

1. Selling Your Business: Ideal for making a profit, retiring, or investing in a new venture. Decide what's for sale (shares or trade and assets) and find the right buyer. Multiple bidders can increase your sale price. Work with an accountant and solicitor to maximise value and navigate due diligence.
2. Passing it on to Family: A traditional route, but ensure the successor is the right fit. This involves a transfer of power and assets, possibly with a transitional period. Extracting value efficiently requires tax planning.
3. Management Takeover: Three common methods:
   • Management Buy-Out (MBO): Existing management buys the business.
   • Management Buy-In (MBI): An external team takes over.
   • Buy-In Management Buy-Out (BIMBO): A mix of existing management and external managers. These routes require careful planning to mitigate conflicts and financial commitments.
4. Winding Down the Business: Suitable if there is no buyer or successor or if the business is not profitable. A member's voluntary liquidation (MVL) involves closing the business and returning capital to shareholders, which a professional adviser handles.
5. Acqui-Hire: Selling the business to acquire staff rather than assets. This can result in generous offers and secure jobs for employees, though it may be costly.
6. Initial Public Offering (IPO): Making the company public and selling shares can result in significant profit but involves extensive preparation and ongoing scrutiny.
7. Merger or Acquisition (M&A): Another company buys and merges with yours. Negotiating the terms can be lengthy but potentially lucrative.
8. Bankruptcy or Liquidation: The least desirable option, applicable when debts exceed assets. This usually leads to closing the business and losing investor funds.

Maximising Business Value Before Exit

Boosting business value before exit involves:

• Timing: Monitor market trends and financial climate.
• Valuation: Assess company history, prospects, sector performance, cash flow, turnover, efficiency, and profitability.
• Preparation: Address any business flaws before the sale to maximise value.

Getting Started

It's never too early to start planning your exit. Consider your plans, whether starting a new venture or retiring and how much money you'll need. A clear idea of your next steps can shape your exit strategy, and professional advice can help you make informed decisions.