Whether you have just started a business or have been operating a business for some time, it is essential that you consider your exit strategy from the business so that you are prepared and able to make decisions in readiness for not only your future, but the future of your business.
Whilst it may feel foreign to think of how you will leave your business or even how you will bring your business to an end, it is something that you should be considering at all stages of your business. Whether your business is just starting out and the future is unclear or whether you are a large successful business turning over a profit on a yearly basis, you will, at some stage, either need to leave the business or close the business.
Remember, “By failing to prepare, you are preparing to fail.”
There are a number of exit strategies that are often utilised by entrepreneurs, the primary strategies used are as follows:-
One attractive option to many entrepreneurs is to hand the reigns of the business to a family member. Many individuals do not want the business to pass outside of their family and therefore elect to leave their business to one or more of their family members.
This can be a positive choice in that the business will therefore remain within the family, securing your children’s or relative’s future and keeping your success and achievement within your family.
However, this option could also carry some negatives. For instance, you may not receive much or any of a pay out in connection with your achievements, your family member may not continue the business in the way you or the rest of your family agree with or they may choose to sell the business to a third party.
Draining the Business
If you would like to realise your efforts in the business and profit personally, a strategy which may be attractive to you is to drain the profits of the business. Whether by way of salary or dividends, by taking the profit of the business and not investing any further funds the business will eventually need to be dissolved or will cease to operate.
Whilst this may be a positive choice in order to maximise your personal return from the business, it is an option that may potentially see your business come to its end.
Liquidate the Business
Whilst similar to draining the business, some entrepreneurs do not want to see their business proceed outside of their control and would rather see the business wound up and cease to trade. In these circumstances, the assets of the business will be sold in order to pay any creditors and the company will be dissolved.
Whilst again this may be preferential for your personal wealth and for you to have a clean break from the business, this may see all of your hard work and success come to an end.
Another option to consider may be selling the business to a manager or employee of the business. This may be seen as a ‘friendly’ option that could potentially see the business continue in a similar way to as it is being run by yourself, in addition, it is a potential way for you to see a return from the business.
However, you may not see the best return for your efforts in the business in that your employee may not be able or willing to pay as much as you may receive on the open market.
A popular exit strategy is to sell the business to a third party, whether that is an individual or another company. This can be a good way of having a clean break from the business, realising your efforts in the business by receiving a pay out and also potentially secure the legacy of your business.
However, there is no guarantee for how the business will be run and, once sold, you will have no control over the business. The new owner will therefore be able to raise the business however they see fit and may even dissolve the business.
There are other exit strategies available, such as a partial removal from the company or even floating the company on the public market.
It is always important when making business decisions to examine the legal and financial implications of that decision. It is therefore important to take advice from accountants and also specialist legal experts.
Whichever exit strategy you choose, or even if you are still undecided and need some further advice, our specialist team of Commercial Solicitors can provide you with the assistance you require to set up your business. Please call us today on 01702 338338/ 01277 500123/ 0208 049 5888.
This article does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. If you require specialist advice on this topic, please contact us to discuss how we may assist you.