Options for Exiting a Business
“Affairs are easier of entrance than of exit, and it is but common prudence to see our way out before we venture in.”
Aesop Author 620 – 560 BC
There are several options available for exiting a business, and the most suitable option will depend on the owner’s circumstances and preferences. Here are some of the most common options for exiting a business:
Family Succession
This involves transferring ownership and management of the business to a family member, usually a child or a sibling. Family succession requires careful planning and communication to ensure a smooth transition of ownership and management. It is also important to consider the financial implications of the transfer and ensure that the business is left in a healthy financial state. Read here my earlier post on how to have a successful family succession.
Management Buy-Out
This involves selling the business to the existing management team. The management team raises the funds needed to purchase the business, and the owner receives payment for the sale of their shares. Management buy-outs can be an attractive option for owners who want to ensure that the business remains in the hands of the people who have been instrumental in its success.
Selling to a Third Party
This involves selling the business to an external buyer, such as a competitor, investor, or private equity firm. Selling to a third party can provide a significant financial return for the owner, but it requires careful planning and preparation to ensure that the business is attractive to potential buyers. Read here the steps that you need to take to maximise the return.
The Process Involved
Exiting a business requires a structured and well-planned approach to ensure a smooth transition of ownership and management. Here are the key steps involved in the process:
Define Objectives: The owner should define their objectives for exiting the business, including the desired timeline, financial goals, and succession plan.
Assess the Business: The owner should conduct a thorough assessment of the business to identify any areas that require improvement before the exit. This could include improving financial performance, streamlining operations, and strengthening the management team.
Determine the Valuation: The owner should determine the value of the business to ensure that they receive a fair price for their shares. This may require the assistance of a business valuator.
Plan the Exit Strategy: The owner should develop a detailed exit strategy that outlines the steps involved in transferring ownership and management of the business.
Execute the Plan: Once the exit strategy is developed, the owner should execute the plan, including identifying potential buyers, negotiating terms of sale, and finalising the transfer of ownership and management.
Key things to consider
Exiting a business is a complex process that requires careful consideration of several key factors. Here are some of the most important considerations:
Financial Implications: Exiting a business can have significant financial implications, including tax liabilities, capital gains, and estate planning considerations.
Legal Obligations: The owner must ensure that they comply with all legal obligations, including any contractual agreements, employment contracts, and regulatory requirements.
Employee Retention: Exiting a business can cause uncertainty for employees, and it is important to consider how to retain key staff during the transition.
Brand Reputation: The owner should consider how the exit will affect the brand’s reputation and take steps to ensure that the brand remains strong and positive.
The route to a successful Business Exit can have many twists and turns, with factors outside of the business owner’s control, the sooner the owner starts the planning the more likely a successful exit will be. We at CMC have experience with planning and supporting business owners in their exit ambitions. Need our help? Contact us via the link below.
“Exit, pursued by a bear.”
William Shakespeare, The Winter’s Tale
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