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Exit strategies: Different types and what you should know

When planning on leaving your business, you will need to think about your exit strategy.

There are four key types of exit strategies that you could implement, the nature of these depending on your business and personal circumstances when you leave.

 Passing the business to a family member

This route not only keeps the business within your family but also ensures that the company’s values and traditions are upheld.

Some advantages of this method include maintaining the existing company culture, with there also being several tax reliefs available for family business successions.

However, it is important that the family member taking on the business has the interest and skillset for the business so that it can continue to run successfully. Here, it is important to start early succession planning, alongside proper training, and mentorship for the potential successor.

Selling it to a Third party

Selling your business to an external party can be an advantageous move, as they might be willing to pay a premium for a well-established business, and new owners can bring innovative ideas and renewed energy to the business.

Some disadvantages of doing this though could include the external party overhauling the existing company culture, which might not sit well with existing employees. Furthermore, finding the right buyer and negotiating terms can be a lengthy process.

Selling the business to management

Known as a Management Buyout (MBO), this strategy involves selling the business to the existing management team. This could include senior management or a broader group of management staff.

One of the good things about doing this is that the existing management already understands the business operations, and the strategy can boost employee morale as it demonstrates trust in the existing team.

There are some things which you should be aware of before doing this though, including management teams might face challenges in securing the necessary funds for the acquisition.

There can also be conflicts of interest during negotiations, which might affect the business adversely too.

If deciding on an MBO, you should consider bringing in an external advisor to avoid conflicts of interest and to help the negotiation process.

Liquidating assets

In scenarios where passing on or selling the business isn’t viable, business owners might opt to liquidate the assets to pay off debts and return money to investors and shareholders.

This strategy allows for a quicker business closure compared to selling it or passing it on.

Unfortunately, though, the financial returns are often lower compared to selling the business. Additionally, liquidation often leads to job losses, affecting the livelihoods of the employees too.

Before opting for liquidation, you should explore all other avenues and contact an expert to ensure you get the maximum value from your assets.

For more advice about business exit strategies, please contact us today.


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