In my spare time, I enjoy writing about parenting, productivity, and home improvement.
Every business owner will eventually exit the business. Whether it’s because you want to hand the business down to family or you want to sell completely, having a plan in place will make the move seamless.
There’s a reason you own your business. But there’s a reason you may need to leave. Whether it’s the right time, or you’re simply feeling the strain, understanding why and how to successfully leave the company will help you plan to transition—for you and your employees.
When choosing the right strategy, there are a number of elements to consider—do you want to sell? Are you feeling burnt out? Is it time for your children to take over? Are you facing bankruptcy? The reasons for the exit will largely determine how the strategy will occur.
1. Selling Your Business
Selling your business seems to be one of the more obvious ways to exit. It’s a major decision in a business owner’s life, especially if you have been invested emotionally and financially in the business for a long time. The first step is actually making sure that selling is the best decision for you.
For example, if you’re selling due to financial problems or struggling with the relevant regulations, you may be better off seeking expert advice to get you and your business back on track. However, if you’re selling because you simply want out, well then, it may be the best solution. Just always consider how exiting your business in this way may impact, positively and negatively, your personal and financial circumstances.
A good tip, if you can control it, is to sell when your sales and profits are increasing. Why? Because the market will place a higher value on your business, which will hopefully motivate more potential buyers.
2. Buying Out
If you’ve decided you’re ready to exit your business but you don’t want just any old stranger buying it, it may be a good idea to approach current partners or employees to see if they want to step in. The advantage of this is you’re keeping it "in the family" so to speak. Partners or employees already know the business and how it operates.
Sure, they’ll probably put their own spin on things, especially in terms of management style, but handovers can be quite simple because there’s no need to explain everything from scratch.
Of course, it can be hard to hand over your business to people you know because there’s a personal relationship there—don’t let this tempt you into trying to control the way they run the business. Remember, it’s their baby now.
If you simply want the business to disappear, this is the way to make it happen. Liquidation essentially means to close completely and sell all the assets. For small businesses that are reliant on a single individual, this is often the only option to exit. Of course, liquidation is a very complex area and there are a lot of factors to consider.
On the plus side, depending on the sale of any assets, the business can be wound up quite quickly. However, disadvantages include that as a business owner, it provides the lowest return on investment and any creditors, if there are, will have the first claim on any funds received from the sale of the assets. The key to any successful liquidation strategy is to always choose the liquidator carefully.
4. Hand it Down to Family
Quite literally ‘keeping it in the family’, passing your business down to the next generation is a lovely way to ensure it stays a family business. This is the perfect option for those who still want to watch from the sidelines.
However, the key here to make sure there’s actually another family member who wants to be involved. It’s also crucial that you don’t try to remain in the business once it has been handed down. Remember, you’re exiting the business for a reason, it’s the next person’s time to shine.
5. Sell Your Stake
You may not fully own your own business, but rather, the business may be set up as a partnership or company with many different owners. This doesn’t mean you can’t sell. It just means you’ll be selling your individual stake in the business.
Often, this means your partner/s will buy out your shares, or a whole new person will come in and take over your portion of the company. The good thing about a partner taking over is that it allows for a smooth transition. Indeed, even if an investor buys your share, there are still people in the know involved in the company so the move can still be pretty seamless.
6. Merging the Business
Merging the business with another involves consolidating companies or assets with another company. Most business owners choose this option because they believe the companies can profit and benefit from each other, gain a competitive advantage over other companies, increase market share or stimulate growth.
There are different types of mergers so it’s important to figure out exactly what road you want to take but in terms of benefits, if you want out, this can be a great way to ensure the company continues to grow and flourish. It also allows you to negotiate the selling price and ensures you’re looking after your employees, as generally, a merger provides them with greater job security than a simple buyout.
Keep in mind that bankruptcy can happen outside of the business owner’s control. In the most general terms, bankruptcy means that the business is unable to pay the debts. This can either be declared by a third party or you can declare yourself bankrupt, known as voluntary bankruptcy.
Bankruptcy will release you from your debts so it seems to be the best exit strategy for businesses that are in trouble, with nowhere to turn. While it sounds like the most frightening option, sometimes it’s what is best for the business.
Choosing the best exit strategy ultimately comes down to a few factors—how do you want to go, when do you want to go and what financial state the business may be in. Sometimes, it will come down to personal choice, whether you want to keep things in the family or ensure they remain completely separate. It also comes down to what you believe is most important in exit planning—do you want your legacy to live on or do you want to say goodbye to the business completely.
Whatever option you choose, it’s important to have a strategy in place already. That way, you can discuss your options with whoever you need to prior to the exit occurring and you can have a thorough plan in place for when you actually decide to go.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2019 Luke Fitzpatrick