Do you have a business exit strategy? Discover your options

Why should small business owners have an exit strategy?

Many small business owners start out eager to grow their business, seeing it as their long-term future. Creating an exit strategy in which they set out how they plan to remove themselves from the business is simply not on their agenda. Why would they want to walk away from something they’ve built themselves and which they love?

There are many reasons a business might need an exit strategy. For example, entrepreneurs are often full of fresh ideas and innovation. After a few years, they’re itching to move on to the next project. An exit strategy will allow them to do this. Other reasons can include an owner no longer enjoying the business, an event which changes their perspective, or an outside investor seeking their return.

While you might never implement your exit strategy, it ensures you’re prepared for whatever the future might hold. While many will think of profiting from exiting their business, an exit strategy can also minimise your risk should things become challenging. Ultimately, though, if done properly, the process can keep you focused on increasing the value of your business and making it an attractive proposition. In other words, it will lead to a better business.

It's all in the planning

However, a successful exit from your business does not happen overnight. It requires careful planning and preparation, especially if you want to maximise your financial gains. Therefore, it’s beneficial for business owners to work on their exit strategy a few years before they wish to move on.

This gives you the time needed to get organised and make your business an attractive proposition. For example, you can ensure all your accounting and records are in order. Most buyers will expect a minimum of two years of financial records. If these aren’t up-to-scratch, it will put them off. You can also fine tune and record all the systems and processes in your business, ensuring that anyone new coming in can continue to run it smoothly.

In addition, forward planning allows you to seek ways in which to increase the value of your business and select the right team of expert advisers. It also gives you the time needed to train up staff members and reduce the reliance on you.

5 exit strategies to consider

All these measures will contribute to a far more successful exit from your business. But what are your exit strategy options? While this is not an exhaustive list, here are the five most common ones for you to consider.

Merger and acquisition – Another business might have interests which align with yours and either acquiring your business or merging it with their own, could make good financial sense for them. This is particularly the case where the two businesses are serving the same target market. If you’ve done your work on increasing the valuation of your business, then this can be a very profitable exit strategy.

Sell to an individual – There are various options with this one. If you are in a partnership, selling your share of the business to another partner can be a quick and easy exit plan. However, if this isn’t the case, an entrepreneur or someone you know might be interested in buying the business, as an established business is often less risky and easier to run than starting from scratch.

Initial Public Offering (IPO) – This method has become less popular since the “Dot-com bubble burst” in 2000. However, many businesses still use it. It is when a business sells shares to the public. One advantage of this strategy is it allows a business owner to choose whether they will exit completely or stay involved in some capacity.

Buyout – Some businesses have a management team who are passionate about what the company does. In these cases, a management buyout can be a popular option. This can be a group of employees or an individual. As they are already involved in the business, there is the advantage that they are familiar with how it works.

Liquidation – If your business ends up in a position where it is no longer profitable, then this would be the best exit strategy. It involves selling off any property and assets to pay off any debts and stakeholders.

Creating your exit strategy

There is no one-size-fits-all with exit strategies. Each option comes with its own set of advantages and disadvantages. But creating the right exit strategy for your business will allow you to plan, prepare, and maximise the valuation of your business. If you are considering exiting your business in the next few years, then get in touch to find out more about our Exit Support Package, which gives you all the guidance and support you need to prepare your business for a successful sale.