How to exit your business: what are the different strategies?

Every business owner needs to have exit strategies in place and preferably many alternatives.  

We cover the four most popular exit strategies for businesses as sooner or later, you will leave - even if you never retire, you won’t live forever.  

You may have many reasons to exit your business other than retirement, such as the wish to try something different, extract the full value of your business, or pass over the helm to a new owner or family member.  

Equally, there may be other stakeholders in your business who wish to exit for their own reasons, which is why planning is essential. 

Summary

• A planned exit will always be preferable to one forced on you by circumstances. 

• There are four main options for exiting a business. 

• Part of your plan should focus on how to boost the value of your business before exiting. 

• A qualified financial adviser or accountant can help you plan your exit strategy. 

What is a business exit strategy? 

A business exit strategy is an owner’s plan to sell their stake in a company to internal or external investors or another business. 

With a business exit strategy, the owner can either reduce or eliminate their stake in the company and maximise the value of the business for higher profits if it’s successful. 

If a company is not successful, a business exit plan can help to limit losses. 

Why is it important to have an exit plan?

A planned exit will always be preferable to one that is forced on you by circumstances. Planning lets you choose the means by which you leave, and also to groom the business for that specific strategy.

This helps ensure the smoothest possible transition while releasing maximum value from the business. Just as importantly, it is the best way to safeguard the health of the business into which you have put so much time and effort.

You don’t want to jeopardise its future with an unplanned exit.

How could I exit my business?

There are many options for exiting a business, including: 

• Selling it

• Passing it on to a family member 

• Negotiating a management takeover

• Winding the business down 

• Agreeing to an ‘acqui-hire’ 

• Completing an M&A deal 

• Undergoing an initial public offering (IPO) 

• Bankruptcy or liquidation 

Your business plan should include a section on exit strategies, preferably with both a Plan A and a Plan B if circumstances make your first choice difficult. 

These plans will be useful in shaping your overall business strategy. 

First, decide what you want to achieve from your exit. 

Do you just want to make as much money as possible, or are you keen to see the business get stronger? Do you hope to pass it on to family, or would you not mind if it ceased to exist?  

All these considerations should influence your decision. We’ll now explore each option. 

Should I sell my 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 accountant 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.

You’ll also need a solicitor during the due diligence and contractual negotiations. Selling may take anything up to two years, so plan well in advance and draw up a timetable for keeping the process on track.

Bear in mind that when you sell shares in the company (which you will do as a part of selling up) you will have to pay capital gains tax (CGT) on the profits you've made.

However, you may be able to halve your tax bill by claiming entrepreneur's relief.

Can I keep it in the family?

Passing a business onto one or more of your children is a tradition many families desire, but don’t let this cloud your judgment. 

When you have someone in mind, ask yourself if they really are the right person for the job – not just whether they deserve it.

Passing on a family business can also be a complex process, involving both a transfer of power and a transfer of assets. It can help to arrange for a transitional period so that the new owner can ‘learn the ropes’ and defer to you in a crisis.

You may want to extract some value from your business in the process of passing it on, so talk to your accountant about the most tax-efficient ways to do this.

A management takeover

There are three common ways for the management to purchase the business.

In a management buy-out (MBO), the business is bought by an existing management team.

With a management buy-in (MBI), a new external team takes over, while in a 'buy-in management buy-out' (BIMBO), the business is bought by a combination of an existing team and an external manager.

Taking one of these routes is often the quickest and most efficient way to exit your business, particularly if the team already knows the business well.

However, in an MBI or BIMBO scenario it’s important to consider and mitigate any potential conflict between existing team members and a new external manager.

It’s essential to take both financial advice and legal advice when approaching any management takeover, as there may be cost commitments at an early stage.

Should I wind the business down?

Winding down a solvent business, or a members voluntary liquidation (MVL) is another common exit strategy.

If there is no obvious buyer or successor in your family or management team, or if the business has suffered losses and is unlikely to return to profitability, you may decide to close the business and return capital to shareholders before it becomes insolvent.

An MVL has to be dealt with by a professional adviser, to make sure all the business’s liabilities are taken care of. Taxation, employees, pensions and property all need to be considered when winding a business down.

Should I consider an acqui-hire? 

An acqui-hire is when a business is bought to acquire the staff, rather than specific assets. 

One of the advantages of an acqui-hire is that you may get a generous offer and your employees will likely be well looked after, but it can be an expensive process. 

Should I do an initial public offering (IPO)? 

If you choose an IPO to exit your business, you’re essentially making the company public and selling shares to shareholders, which can result in a huge profit. 

However, IPOs can have mixed success, and there is much to do beforehand, which can be expensive.  

After your business goes public, it will also come under scrutiny from investors and shareholders, as well as regulatory bodies. 

Complete a M&A deal 

Instead of simply selling your company, your business might undergo a merger or acquisition.  

So, another company could buy your business and merge it with theirs or another to create a new company to boost their reach, acquire a rival or acquire a particular asset. 

With an M&A deal, you can help negotiate the terms and may get a good price if many companies are interested, but it can be an expensive and lengthy process.

Bankruptcy or liquidation 

Bankruptcy is the least desirable option and applies to individuals who can’t pay off their debts, resulting in your assets being seized and your credit score being impacted. 

Liquidation applies to businesses where you choose to close your company and sell assets to pay off any debt which you may not be able to fully repay. 

With liquidation, your company’s debts usually exceed its assets, and you don’t have enough money to pay your bills. Investors are unlikely to get their money back. 

The most likely outcome is you close your business, but you should seek financial advice first. 

How can I get the best value? 

Part of your exit plan should focus on boosting the value of the business prior to exit and extracting maximum value from the exit itself.  

A key part of this is deciding when to exit, so monitor market trends, the financial climate, and the availability of potential buyers or successors. 

To value your business, an adviser will consider the history and future prospects of the company, the performance of other businesses in the sector, and recent sales.  

They will also pay close attention to cash flow, turnover, efficiency and profitability. 

How do I get started? 

It’s never too early to start thinking about your business exit plan. 

To get started, consider what you might want to do next. 

Is it time for a new venture or to retire? Then, think about how much money you will need for those plans.  

A clearer idea of what you want to do next can help shape plans for exiting your business, and this is where financial advice can help. 

Need help planning your business exit? 

Unbiased can quickly connect you with an accountant or financial adviser who can offer valuable insight into the best strategy for exiting your business and maximising value.