Every Business Owner Needs an Exit Strategy

The Bigger Picture In Selling Your Business

What should you do with your business when it’s time to move on?

Your hard work and determination have created a successful business, which you are rightly proud of. Your success has given you financial security but now you instinctively know that you need to step back.

If you wish to realise the full value of your business you need to find the right type of buyer. So, who are these buyers? Are there other alternatives to selling? Here we provide the eight main options open to you.

 1. Passing your business on to the people who helped build it

The company’s staff is often a crucial factor behind the success of a business and so, for some owners, giving the management team the opportunity to buy and run the business for themselves is an excellent option.

The existing management will almost certainly offer the safest possible hands for the business to pass into and this option rewards them for their years of loyal service.

A gradual handover, with the owner staying on for a while to provide a ‘steady hand’ as the management team takes control, is often the best way of steering the business through the period of change. This option is commonly referred to as a ‘Management Buy Out’ (MBO).

2. Keeping it in the family

It is very common for other members of the owner’s family to have been involved in the business and to know something about how it operates. From an emotional viewpoint, with goodwill on both sides, it can be very satisfying to pass the business on to loved ones and to provide them with some future financial security.

This option will probably yield the lowest financial return for the business owner, but this decision is more about heart than head and can provide a great platform for future generations.

 3 Being the wanted one…

It’s not uncommon for an owner to be approached directly by someone who wants to buy their business. A competitor, or a company in a related field, may make an approach and even make an offer. If the price is acceptable this can be one of the easiest and fastest ways to sell a business.

However, in our experience, such offers don’t always lead to the best deal. If one buyer is interested in your business it is likely that others are too. It is wise to put your company on the market, even as you continue with negotiations, to see if there is interest from other parties.

4. Private investors’ interest

Private investors look to invest in businesses. Clearly, they will want any business they buy to grow so that they can sell it for a profit at some point in the future, but often they are prepared to be patient and take things gradually.

Normally, they will seek to keep the current management team in place, at least initially, and, although they will press for growth, they won’t want to take an operational role themselves. You may have to stay in post for a while to ensure succession and postpone your plans to disengage for a year or two.

5. Private Equity is big

Similar in many ways to private investors, private equity companies also seek to invest in businesses and grow them. However, they differ by aiming to invest for shorter periods and generating steeper growth curves. This can mean management teams can be driven harder but incentives to do so are often lucrative.

Private equity companies focus on SMEs and larger organisations which offer them greater financial security and business stability. They also require businesses to retain all their current management and are more likely to require owners to work within the business for a specific period to secure the operations of the business and reduce the risk from changing the company’s figurehead.

This period of work is frequently linked to the financial performance of the company, which normally is linked to the sale price. Such arrangements are called ‘earn outs’.

 6. ‘Shutting the Shop’

Any business can simply stop trading, sell off its stocks, settle any outstanding debts and close its doors. It is the simplest way to exit a business but is a real waste! Most successful businesses have a customer database, strong customer relationships, a valuable brand name and a track record of sales and profits. Together, this all adds up to a significant monetary value.

Choose to close a business down and all that value will be lost, the value that has taken many years to build. And if that isn’t enough, there’s the thorny task of making employees, some of whom may have become friends, redundant.

Even if your business is struggling, before you close it down, talk to your staff, talk to business partners, even talk to competitors. You may find an unexpected buyer out there.

 7. Administering the end

A business owner’s final option is to place the business into administration. It is the least desirable option, for many reasons. Once it is known that a business is in administration, most product supplies to the company will cease and lines of credit will stop, creditors will aggressively chase their dues, and some debtors will attempt to stop paying, making the process of continuing to trade a huge challenge.

In addition, the administrator’s costs are likely to be high and can often swallow most of the company’s value. The owner’s reputation may also suffer and affect any future business plans, so owners must think carefully before choosing this option.

 What we say

 “Selling your business is one of the most complex and challenging processes you’ll ever undertake. You need to consider carefully all aspects of your sale and recognise where you need help before you embark on the sale process.”

What should your response be?

Achieving a successful business sale does not come about by accident; you will need specialist help to choose the right solution for you and for your business.

Firm Gains provides an independent perspective on the business sale process. We base our advice and recommendations on your specific situation as well as on our own experience. We are able to recommend the most suitable specialists by matching your needs with their expertise, resources and track records and give you the best chance of achieving your goals.

Why not call us now on 0333 050 8225, or contact us through this website. We connect business owners, like you, with the right business partners every day and are here to help you.

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