Business Exit Strategy – Planning for success

Creating an exit strategy should begin long before you decide to sell or transfer your business to its next owner.

It is often advised that you put a strategic exit plan in place as soon as you begin your business, so that your goals and ambitions align with your eventual departure.

Your business exit strategy should include what will happen to your business after you leave, including planning who will take it on.

These considerations are important as they will determine how the business is disposed of and potential tax implications.

What to consider

When deciding on your exit strategy, it is important to take into consideration the future of your business, as well as your own future.

You need to think about:

·        The level of involvement (if any) you would like to maintain

·        Any control or decision-making abilities after you have left

·        How the company should be run after your departure

·        Who you would like to take on your business

These will help you decide which exit strategy fits your vision best.

Types of exit strategies

Once you have planned what you would like to gain from exiting your business, it is time to look at the common types of exit strategies that businesses use.

Each one has its own unique set of advantages and disadvantages:

Initial Public Offering (IPO)

This is when a company moves from private to public, offering shares of stock for public purchase.

Advantages:

·        Increased visibility and credibility

·        Higher valuations of business

·        Chance of better investments

Disadvantages:

·        You need a clear idea of your company’s financials, management team, and future plans before filing

·        Filing Securities and Exchange Commission (SEC) reports must be filled out

·        Selling shares through an underwriting firm

Going public works well for late-stage and well-established companies. However, for small businesses and start-ups, other, more suitable exit strategies should be considered.

Management Buyouts (MBOs)

An MBO is when a company’s management team purchases the assets and operations of the business. This is suitable for many businesses, but especially those who do not wish to go public.

Advantages:

·        Maintained confidentiality

·        Buyers already have experience

·        Management is likely to already be invested in the company

Disadvantages:

·        Management may need to seek additional funding

·        The business will usually take on debt

·        May not get a price as high as selling publicly

MBOs are ideal for business owners who do not want to go public. They reduce the need for finding a third-party buyer and allow the business to be run much the same as it has been before.

Succession:

As well as passing on to other professionals, businesses can be passed on to family members such as children, grandchildren, or siblings. This is called succession.

Advantages:

·        Allows you to maintain involvement

·        Assets remain within the family

Disadvantages:

·        Can cause conflict between business and family

·        Family members may not have the right experience

·        Considerations for Inheritance Tax and other tax liabilities

Whilst succession can be a great option for maintaining involvement within a company, it is important to consider if your family members are appropriate for the role.

From tax obligations to day-to-day business responsibilities, they must be prepared for all elements of taking on your business.

Acquisitions:

An acquisition is a transaction where one company buys most of or all the shares of another company. These are closely linked to mergers and takeovers, although they are all different.

Acquisitions are typically friendly, where the target company agrees to be acquired. The board of directors approves of the deal, and they work with the company acquiring them towards a deal that benefits both companies.

Strategies must be developed to ensure that the acquiring company is purchasing the right assets, review financial statements, and other valuations for obligations.

Choosing your strategy

As well as the above-mentioned options, there are other elements you need to consider before deciding on your business exit strategy.

This includes Capital Gains Tax, which you may be expected to pay should you sell or transfer your business.

You may be able to reduce the amount of Capital Gains Tax that you need to pay by seeing if you are eligible for Business Asset Disposal Relief.

Whatever strategy you choose, it is always important to ensure that you and your business get what you need from it. Getting expert advice can help.

For help planning your business exit strategy, get in touch with our team today.