Running a business is often so rewarding for the owner – you’ve spent years crafting your skills and perfecting your skill set to get to where you are today, but there will always come a time when you’ll have had enough, but where do you go from there?
You’re at the stage where you want to stop working in your business, but you’re not sure what’s the best way of leaving the business. Do you sell? Do you hand it over to someone? These are all questions that at some point you’ll have to ask yourself to make sure than leaving your business is a smooth transition for everyone involved.
In any case, it is always beneficial to consider your exit strategy, as the ways in which you can exit can affect everything from whether you retain any involvement in or control of your business to more importantly the future success of the business and its products or services.
However, as you plan to exit your business, it is always worth considering the various options, so we’ve put together this blog post to summarise the different methods of exiting your business. As always, we recommend you seek advice in any case to ensure the process is as smooth as possible for yourself and your successors.
Option 1 – Selling your business
Ask yourself this: ‘is my business attractive to potential buyers?’ This is the million-dollar question when choosing to sell your business, because selling your business can be difficult if you are not already a limited company, as prospective buyers will assume you are less well-established.
If you’ve got an attractive business ready to sell, you have the option of selling to another business, a private investor, or your employees or management. Selling to another business is known as a trade sale, where you are selling the business (or parts of it) to an outsider who is already working in your field.
Alternatively, you can choose to sell your business to managers or employees, which is known as a management buyout. These often occurs when your staff have heard the business is up for sale and are interested in buying the company or extending an existing stake.
Sometimes this option may not be as profitable as selling to a trade buyer as your managers or employees might not be able to raise the necessary funds to buy the business. Because of this, careful consideration should be made as to what might happen if your staff fail to buy the business.
Option 2 – Family succession
Do you worry that leaving the business may prevent you from supporting your family? If so, then passing or even selling the business to your son, daughter or other family member can be an attractive option. Not only does it give you the option of maintaining an involvement in the business, it means you are passing assets to your heirs and ensuring they are provided for.
Family succession does mean, however, that you are reliant on your family members being interested in taking over the business years later. If you think this may be difficult, there are steps you can take, such as letting your children get involved in the business as soon as possible. This allows you to begin to understand how the business works on a day-to-day basis, whilst allowing you to gauge their interest instead of risking them pursuing other options.
Option 3 – Floating your business
Sometimes, the most rewarding option financially is often the most appealing, but it can present a lot of risks. Floating your business is no stranger to this idea, because selling your shares on the stock market can often yield a good return.
That being said, it is often the case that this exit route from the business is partial, because potential investors are often wary if you are selling off your shares. Having figures should as a record of delivering strong earnings and profits over a number of years, and a developed business plan can support you in this instance, and if you are successful, floating your business can help you realise the investment you’ve made in your business.
Option 4 – Close your business
There is often an assumption that closing a business is a decision that has been forced upon you due to poor trading conditions or financial difficulties. In actual fact, this option might be the one most suited to you when you decide to exit, as there may be a number of circumstances where it’s the most practical option.
For example, your business may be too dependent on your particular skills to make a sale realistic, or you may want to exit your business during an unfavourable economic climate. In any case, it’s important to seek professional advice about your opinions in these circumstances from a third party, such as a solicitor, accountant or financial advisor.
It is also worth noting that the legal structure of your business will also impact whether or not you can simply close your business. Sole traders may be able to close the business and pay off any outstanding liabilities, especially if there are no employees involved. This is due to the fact that factors such as VAT registration, tax and National Insurance obligations can all make the process more complicated.
Where to go for more advice
Choosing a strategy for exiting your business is no small task, and the exit process involved will largely depend on which option you choose. Because of this, consulting with a specialist third-party advisor is extremely beneficial, as they will be able to offer a fresh perspective and provide guidance and reassurance during the whole process.