Small businesses with solid exit plans mean less stress
Starting a business is the easy bit. Working out where your empire is heading and where your role will end is probably the hardest part. Whether you are just starting up your business or your business has been going for years, you should always have in mind where you are heading with it all. You don’t want to work forever, and even if you do, realistically there will come an end to your working life, so an exit plan is essential. However, the smaller you are as a business, the harder it can be to identify the work/life boundaries and plan a route out.
For starters, what options are available to you?
Close the doors and walk away
If you are only just thinking about exit plans this can seem very extreme and probably only a last resort but think about your business as analogous to a professional sportsman. It may be far better to bow out at the top before your performance begins to dwindle and everything becomes more of an effort and far less enjoyable, than to keep things going, watching it wane and become a shadow of its former self.
It does take a strong stomach and a focused mind, however, to liquidate your business and simply stop it in its tracks. For most, to see all the blood, sweat and tears just come to an abrupt halt is too much to even consider but for a savvy business person it is not a possibility that should be completely ignored.
Of course, when a business is nearing its natural end – be that a change of market or potential change of ownership, even the best run businesses may begin to struggle. It may be that there are no assets left to sell, which with the potential cost of run-on insurance will leave the business in negative equity and you without money to take out from your years of hard work and investment. Ironically, it is at that stage that most look at the close-up option when the end result is actually far less appealing. It’s situations like this that make it important to think ahead and consider exit strategies many years before you may want to put the final plan into effect. It is far better to plan an earlier exit that is properly structured and focused on what is right not only for you but also for your business.
The good old family business with the dream of handing it down to your children so that the legacy lives on is still the preferred option for many. In terms of exit strategies, it ticks all of the boxes. There will be time to groom your successor, teach them the ropes and guide them along the same philosophy you have built the business upon. In reality, the appeal of taking over the ropes from ma or pa is not what it once was. Even if your son or daughter – or more distant relative – is keen to follow in your footsteps, the emotional issues involved can be tough to deal with. That’s especially true if their ideas for the future of the business are not in line with yours. Succession needs planning. Is your successor ready to take on full responsibility? What other support will you be leaving them with if they need a second opinion for example?
Management / Employee buyout
If keeping it in the family is not an option then the people who have stood by you and worked with you over the years are surely the next best thing? Possibly, but blurring the lines between employer and employee can be difficult for all involved. If it works it is a great solution as the new owners know the business inside out and the transition can be almost seamless. You will have enthusiastic new owners who may even want you to help out on a consultative basis for a short while – helping ease the pain for both parties. If this is a potential option for you it may be worth seeking some expert advice and looking at employee share ownership schemes that offer tax and national insurance incentives for your employees and also encourage them over time to buy-in to the company and build the concept.
A similar option to consider is that it needn’t be a buyout at all. In many cases, engaged employees are happy to take on the extra responsibility and the chance to keep a company running whilst the owners effectively retire from the day to day grind but retain full ownership of the company.
Find a buyer and sell
There are many business agents who will, for a fee, help you find a potential buyer for your company. To do so, however, there needs to be some value in the company and that usually takes some time and some planning to make it as an attractive proposition as possible. That means all financial records up to date, usually a sign of a rising profit and some assets beyond just the goodwill that may be worthless if you intend to step down from the company once it is sold. A business agent will be able to best advise on the value of what you have to sell, but be realistic on the figures and remember the cost of sale will need to be included in your final calculations too.
Merger / takeoverFor many small business owners, this can be the most profitable exit strategy but it is a difficult one to fully plan for as it relies on others seeing the value of your company within their own business plans. Businesses are bought and sold, merged and split for a variety of reasons, but the underlying goal is usually to increase the profit of the bigger entity. If you are considering aligning yourself as a merger or takeover target you need to make sure you fully understand your marketplace and what it is your competitors are doing or aren’t doing as in the majority of cases it is those competitors who will provide that exit route and your differences will provide the value for the deal.
It’s the sexy sounding one, the one most entrepreneurial business people probably secretly hope for, but an initial public offering (IPO) is an unrealistic dream for all but a small handful and should remain so. Even those businesses built up over years with an IPO in mind, with firm foundations, strong strategies and masterful management are not guaranteed success from an IPO. It’s a massive amount of work and needs a massive amount of financial investment with the potential result something of a lottery. In reality, an unlikely part of your small business exit strategy.
Choosing your exit strategy is as unique as choosing your all-time favourite song. It is what best fits your business and in particular what best fits your small business at a precise moment in time. Business changes over time so whilst it is important to work towards a preferred exit strategy, you also need to be prepared to realign if markets, your health or other factors make a different option more viable or more sensible.
What is most important in determining your exit plan is getting some expert advice and doing your research. There are plenty of ‘experts’ out there who will no doubt for a fee help guide you. But there are also many people who have expertise and experience in the field, such as accountants and fellow business people, who may be only too happy to offer their own valuable insight for free or as a small add-on to the existing service they may already provide you.
It’s never too early to consider your exit plan and it’s only too late when you no longer have any options open to you and your fate is predetermined. Taking steps early enough will avoid unnecessary stress later on, giving you more chance to concentrate on building your business. Have you considered your exit plan yet?