Which way to the exit?
The demands of running a small business can leave little time to consider how you plan to exit that business. However, failing to have a proper exit strategy can lead to a lifetime's work ending up as a weight around your neck, rather than providing for the golden retirement you envisaged.
The first step in developing a proper exit strategy is to decide upon the type of exit most likely to meet your objectives, whilst at the same time being suitable for your business.
The three most common types of exit are:-
1. family succession,
2. trade sale,
3. management buy-out.
If passing the business on to your children is the preferred exit, then it is vital that the children are in a position to make an informed decision on whether they want to take over. This can be achieved by giving them an active role in the day-to-day running of the business as well as wider industry experience. If the children show little enthusiasm or are too young to indicate a preference, then this method of exit cannot be relied upon.
A trade sale is often the preferred exit route but this fails to take into account that there is very often a limited market for the sale of a small business. Consequently, the earlier a trade sale is considered the better. By identifying potential purchasers you can structure your business to appeal to them. This re-structuring could involve ensuring that your business fills a niche in the market that would make it attractive to trade competitors or splitting it into trading divisions if these would be more saleable separately.
If there is no obvious trade sale to be made or willing offspring to take over, then the third option is a management buy-out. This will involve identifying a member of staff or indeed multiple members of staff, who could, one day, buy the business from you. Once identified, those employees can be given a gradually increasing stake in the business so as to tie them in and at the same time spread the cost of the acquisition.
These are only examples of the main options available to a small business owner and there are a variety of others which can be applied to a business depending on its requirements and circumstances. The important thing is not to put the decisions off until it is too late. Seek advice from your accountant and solicitor as they have experience in these matters and will be able to help you develop your strategy and offer advice on wider tax and estate planning issues.
Simon Morris
