Have you ever wondered what life would be like if you sold your business – either to enjoy a well-deserved retirement or to begin a brand new venture? Understanding business exit strategy as simply selling a business might sound obvious. It’s often not as straight-forward as putting a for-sale sign up outside of your business premises though.
If you dream of a business-free future filled with lavish holidays and providing security for your family, many options are available. They depend on whether you want a clean break or to stay involved (either on a day-to-day basis or in an advisory capacity). You should also reflect on if it’s essential to secure employee stability, leave a legacy for yourself within the business community, or preserve your company’s name. You’ll also need to consider if you want an ongoing income after your departure.
These are not easy questions to answer off-the-cuff, so we’ve put together a flowchart to walk you through the available choices and to help you on your way. Start by answering yes-or-no questions below to get an initial idea of the best exit strategy for you.
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As you can see, there are lots of business exit strategy options on the table. All begin with understanding how much your business is worth and the time you want to allow for your exit. Usually, more time increases the number and quality of available options. However, even if you’re short on time, all is not lost. Below is a summary of all the different options you may want to consider.
Sell to your existing staff by instalments
This is a good option if you don’t need to receive payment right now, but you do need to leave the business quickly. It also ensures your employees carry on working at your business and that the culture you’ve created has the best chance of enduring. Your staff will need to be stable, committed to the business and skilled enough to take on your ownership roles – unless you want to maintain a mentoring role after you leave.
Liquidate the business and sell off the assets
This is the fastest option to completely wrap up your company. It can be completed within as little as three months if required. If an ultra-fast liquidation is required, you may not achieve market value though there are lots of companies that can help you achieve that.
Sell some shares to an investor
Consider this business exit strategy if you want to maintain a degree of day-to-day involvement in the company and an influence on its future. Selling shares can be completed within three months – having established connections and similar experience helps.
You’ll get less money in the short-term – but if the company performs well, you will continue to get dividends. You may ultimately be able to sell at a much higher price if the company continues to thrive.
Appoint a CEO and continue drawing dividends
Appointing a CEO will let you step back entirely from day-to-day operations but still draw down dividends. Some owners use this opportunity to take on the role of Chairman. It can take less than three months to make a CEO appointment. However, if there is time, some business owners find external mentoring and coaching much earlier on in the process is useful for both parties.
Sell to a competitor over time with an ongoing advisory role for yourself
Selling your business to a competitor over time allows the company to benefit from your expertise. This may help command a premium price – even beyond the original market value. You can take a hands-on or advisory position, as preferred. Eventually, you will decrease your responsibilities as the new owners gain more confidence in their new company.
Sell to senior staff via an MBO
You can complete an MBO in three to six months when required but often it will take much longer because the process needs to account for a period of succession planning and mentoring. Employees, company culture, and independence are all likely – although not guaranteed – to stay intact.
Sell to a competitor at a discounted, below market value
If you’re looking for a quick sale, a competitor may be very happy to snap up your staff, expertise, contacts, contracts, and other resources at a discounted rate. It can take as little as three months to do this.
Remember, however, that you’ll be selling below market price. That is the pay-off for speed. As such, you should give this option serious thought and, if you can hold out a little longer for the full amount, then you certainly should do so.
Sell in the open market for full business value
If you are happy with the market value of your company, then this could be the most comfortable option. You’ll need to be prepared to wait upwards of six months and, if you want any further involvement, make sure that it’s clearly agreed in the terms of the sale.
Drive growth using marketing and operations until business value increases
Consider this option if you are not happy with the current market value of your business but can see the potential to grow it further. You will need to commit upwards of six months – and often a few years. You will also have to be prepared to invest the passion, motivation, and drive necessary to help your management and staff – and ultimately, your company – to fulfil its potential.
Organise a Management Buy-in to fill the skill gap
Bringing in an external manager or team of managers might be the way forward in some situations. For example, if you want the company to carry on trading once you’ve left, but the current staff lack the collective expertise to take on your role. This is usually a longer-term project with the business owner needing to remain hands-on during the transition phase.
How to make a business exit strategy successful
You should have a clearer idea of the available options according to when you need to exit by. Be mindful of the fact that event these strategies may not be easy to achieve all of the time. Expertise and existing contacts help ensure a quick and hassle-free transfer. Entrusting the services of a business broker will help make the process smooth and on many occasions promote getting a better value deal.
The first step to exiting your business is to get it valued. Why not see if you’re eligible for a free valuation (three out of four businesses are)?