It’s never too early to plan your exit. A well-timed, planned departure allows you to arrange everything for a smooth transition so that your business is in good hands. Proper planning can be the difference between a smooth transition of ownership, and a turbulent one. Our financial experts at Woodsboro Bank are prepared to assist you every step of the way, no matter how daunting the process may seem at first.
When you evaluate your options in advance, you can select the exit strategy that best suits your circumstances and goals.
Here are six typical exit strategies to consider.
Strategy 1. Transferring Ownership to a Family Member
Family-owned businesses often have someone from the next generation preparing to take over. This can be an obvious choice if that person is already working in the business, has learnt your role, understands how the business works, is familiar with staff and can continue to grow the business.
However, family businesses can be complicated if there is more than one sibling or relative wanting to be in control and they have radically different ideas than your own.
To make it easier to sell to family:
- Communicate your intentions early.
- Decide who’s best qualified to lead.
- Get a consensus of agreement who will inherit.
- Access an outside expert valuation.
- Solve conflicts of interest.
- Use a professional, such as an accountant or business adviser to help facilitate.
At the end of the day think what’s best for the business and if a family member has the right skills, experience and business know-how then it can be a smooth transition.
Strategy 2. Selling to a Business Partner
If there is more than one owner of the business, they may be interested in buying the business. Similar to selling to family, take care if there is more than one shareholder wanting control and get an external valuation to avoid any disagreements on price.
You could also consider allowing the new owner to buy the business in stages if they can’t afford to pay in one lump sum. One of the issues is if the business doesn’t perform as well once you’re gone, you may have trouble recouping the entirety of the sale price.
Strategy 3. Selling to Your Employees
An existing employee, or employees, may see their career path buying the business. Often employees make good buyers because they already know and understand the business, hold relationships with your suppliers and customers and are likely to want to continue the way you ran the business, at least for a time.
If an employee doesn’t have enough capital to swing the deal on their own you might be involved in helping them fund the purchase, but similar to selling to a business partner, it’s usually better to ask them to find their own capital so you can make a clean break.
Strategy 4. Selling to an Outside Buyer
Finding another person or company to buy your business outright is often the best exit as you can negotiate for the highest price and leave the business without feeling any personal obligations to the new owner.
To make this easier:
- Get professional help valuing your business so it’s a fair price for both parties.
- Use an intermediary, like a business broker or adviser. to help negotiate with the buyer.
- Look at what similar businesses are selling for.
- Prepare your business for sale by tidying, fixing and updating.
- Set out your business plan for the future.
Selling to an outside buyer can offer a clean break while securing the value of your business, but careful preparation and professional guidance are key for a smooth and successful transition.
Strategy 5. Shut Down the Business
Some businesses close down because it’s difficult to transfer any value and find a buyer. A good example is if the owner is the only employee, where they are the business and it’s hard to justify goodwill.
Alternatively, the business could be under stress and needs to close to prevent reckless trading, i.e. expenses outweigh sales and there is no remedy in sight. If this is the case you should liquidate all your assets for cash and pay off any debts, tax or financial obligations before winding down the business. Seek professional help if it’s likely you need to close.
Strategy 6. Keep the Business and Install a Manager
You may decide to keep the business and employ a manager to run the day-to-day operations. This may be an existing employee or someone new. It’s a popular option if the business is generating positive cash flow and you can draw dividends that provide a better return than investing the sale proceeds.
Recognizing the Right Time to Sell
Determining when and who to sell to can depend on what’s happening in your industry (demand up or down) and of course your own internal retirement clock. Indicators when to sell include:
- You’re confident of the return-on-investment for another buyer.
- The business has gone as far as you can take it.
- You’re ready for another challenge.
- The next generation is ready to take over.
- There is potential for growth.
Good timing depends largely on what the market’s doing at any given time and ideally you’re not in a rush.
Next Steps
Consider your long-term plans, financial needs, and what you hope to achieve from the sale or exit. This will guide you in selecting the most suitable exit strategy.
Seek the advice of accountants, business brokers, or legal experts so that you understand the full financial and legal implications of each strategy.
of the chosen exit strategy, make sure your business is in top shape. This may involve tidying up operations, improving financials, and making it more attractive to potential buyers or successors.
Keep family, employees, and partners informed about your intentions for a smooth transition and to manage any potential conflicts or concerns.
Selling your business is probably the most important decision you’ve made since you started up, so take the time to think about what’s best for you and the business. The more time you have before the sale date, the better the outcome is likely to be.
Contact Woodsboro Bank for all your succession and estate planning needs. Our trusted team of financial experts is here to assist you throughout the entirety of the process, keeping you stress-free and your business running efficiently.