Everyone has developed an exit strategy at some point in their life. Going to a family gathering and don’t want to get caught up in conversation with your crazy uncle? You probably have an exit strategy for how and when you’re going to get out of that discussion. However, as a business owner, have you thought about what an exit strategy means for your company? Why should you have one? And are there different types of exit strategies?
Here is an opportunity for you to begin thinking about how and why an exit strategy may be good for your business. It’s important to assess your personal and business goals to identify which exit strategy aligns with your future goals.
Even if you’re a small business, it’s a good idea to plan ahead and think about how you will transfer ownership of the business down the line, whether you choose to sell the business, or try to scale it and seek to be acquired. It’s never too early to plan.
1. SELLING YOUR BUSINESS
If your primary motivation is to make a profit, retire, or invest in a new venture, selling your business may be a good route. You need to decide what exactly is for sale: the shares in the business, or the trade and assets (this is usually less tax-efficient).
Then you need to find the right buyer. A good starting point is to approach competitors and companies in related fields. Explore multiple options, as having several interested bidders can increase your sale price.
Work with your Finance Director to maximise the value of your business in the run-up to the sale. Any flaws in the business will be revealed by your buyer’s due diligence, so conduct your own checks first to address these. Selling may take anything up to two years, so plan well in advance and draw up a timetable for keeping the process on track.
It’s also important to consider the impact of each type of buyer on your staff, your customers and your company legacy, as well as on your shareholders, if applicable. The highest bidder may not be the best option if your reasons for selling extend beyond financial gains, but only you can decide what matters most.
Your ultimate business and personal goals and reasons for selling, whether they’re financial, physical, emotional or just wanting a reduced workload with some control so you can enjoy what you’ve created, help you identify the type and potential shortlist for a trade sale, but you’re not alone in what can be a very daunting process. There are plenty of corporate finance advisers who can help you, but the final decision rests with you.
2. EMPLOYEE OWNERSHIP
Often referred to as the ‘John Lewis’ model, transferring ownership to your employees should be one of those options you consider. This is either through direct employee ownership where your staff become registered individual shareholders of the majority of shares in the company, or indirect employee ownership where the shares are held in an employee trust.
There are many examples of high performing employee owned businesses. If more motivated and engaged employees sounds appealing then considering employee ownership as part of your succession and exit strategy will align with your objectives. The Employee Ownership Association has said this is an increasingly popular option for business owners looking for the next step.
Companies which are employee owned, or who have large and significant employee ownership stakes, now contribute £30 billion in the UK. With a 3.3% increase in employees within employee-owned companies and a 4.6% increase in sales year-on-year.
According to CEO Deb Oxley, employee buy-outs mean a sale is less likely to result in a closure of a business and can be a way for business owners to preserve the integrity of their company.
Employee Ownership encourages your employees to get more involved in the company’s vision, governance and ensures they are fully engaged and motivated with the company goals.
3. MANAGEMENT BUY-OUT (MBO)
An MBO is where a company’s management team acquire the company from its current owners. Business owners who choose this option typically have strong non-financial motivations. Although price is important to them, factors such as company legacy, employee welfare and local community are often equally and sometimes more important.
An MBO can provide a smooth, flexible and quick transaction, probably more importantly, the process will often leave the exiting owners feeling content in the knowledge that their business will be left in good hands.
3 Main Advantages:
Maintained confidentiality with regards to business processes, and other details that could compromise a company’s success if fallen into the hands of competitors.
Minimal buyer due diligence when compared with a trade sale.
Greater confidence for you, given the management team’s in-depth experience of running the company
The best exit strategy is the one that best fits your business and your own personal goals. Decide first what you want to walk away with. If it’s just money, an exit strategy such as selling on the open market or to another business may be the best pick. If your legacy and seeing the business you built continue are important to you, then family succession or employee ownership might be best for you. Whichever exit strategy you choose, you need to start working on it. Planning in advance gives you the time to do it right – and maximise your returns.
If you’re looking at exit strategies and need help finding the best route for you, feel free to get in touch with us.