When you are working to get a business off the ground, planning an exit will be the last thing on your mind. You are probably thinking the good times will roll on forever, but the day will eventually come when you want to leave. Therefore, tempting though it is to ignore this issue, there are some very good reasons why you need to think about an exit strategy long before you want to leave the business.
Why Leave the Business?
There are many reasons why you might want to exit the business. If you have reached retirement age, it is definitely time to take a break and enjoy the fruits of your labor. Another common reason why people decide to leave is that they are no longer challenged. The hard work is done and they are ready to move on and start all over again. You may also need to pay off a co-director or outside investor, and the only way to release the necessary funds is to cash in the business.
A Lifestyle Company
You may decide you don’t need an exit strategy of course. Running the company purely for profit works for small, privately owned businesses. Instead of keeping working capital in the company in order to grow it, take every penny out and enjoy a great lifestyle. In the short-term, this is fun, but there are tax implications, and when there is no money left or you are bored, it’s time to call it quits.
Common Exit Strategies
There are several ways you can exit a business without financial loss.
· Liquidation is an option. If the business is not worth anything or you don’t have time to look at other options, close the doors and call it a day. Any money left in the business must be used to pay off creditors, but you and any other shareholders can have what’s left.
· Selling the business to someone who has the skills to take it forward is a great way to exit stage left. They pay you an agreed sum, you pay off any creditors, and what’s left is yours.
· Handing over the business to family members, typically children, is common in family run companies. It can work if your children are capable of guiding the business forward, but it can also cause a lot of grief if everyone falls out.
· Merging with a similar business is another option. You combine resources and if you are ready to slip away quietly, agree a severance package and everyone is happy.
· If you have a successful business, you may find that a larger company wants to acquire it. Sometimes large companies will buy out a smaller company in order to move into a new market. The more successful the business is, or the more strategic worth it has, the more the acquirer will pay, so it is a win-win exit for you.
Don’t leave it until the eleventh hour to decide upon an exit strategy. Make use of business valuation services from Avenue M Advisors and find out what your business is worth.