What is the right exit option for you?

Before you are ready to exit your business, it is important to explore the exit options available to you. Many business owners already have an idea of which exit option they wish to take from the business, but there may be other options which haven’t been considered.

It's worth thinking in depth about what you need from your exit in terms of your legacy, the future of the business, timing, money and any ongoing interest in the business you may want to keep. With these things in mind, you can start to build your exit strategy to secure the best outcome.

The purpose of an exit strategy is to plan the transition from the point of view of you the owner, your family, your management team and your employees. The objective is for a smooth exit allowing you to minimise the impact on the business, maximise shareholder value, exit tax efficiently and minimise losses for a loss-making business.

Exit options if your business is struggling will be limited but include:

Members Voluntary Liquidation - used for a solvent company
Creditors Voluntary Liquidation - used for an insolvent company.
Bankruptcy

For successful, healthy businesses, common types of exit strategies include:

Selling your business to a third party
Management Buyout (MBO)
Employee Ownership Trust (EOT)
Passing the business to a family member
An Initial Public Offering (IPO)

Trade sale or third-party sale

Selling your business to a trade buyer or to private investors such as a Private Equity (PE) investor can include the sale of company shares or the sale of its trade and assets/liabilities. A third-party sale means that you can withdraw from full time activity in the business, often after a handover period to allow a transition to let the new team take it forward.

Management buyouts (MBO)

A management buyout can sometimes be an ideal solution for the exiting business owner, especially if the management team are already dealing with most of the day-to-day running of the business. You know and trust them; they know the company and can continue your legacy. But an MBO can have its own pitfalls. You need to establish that an MBO is right for you and the future of your business.

Company Liquidation

A member’s voluntary liquidation (MVL) is a solvent liquidation often providing an exit solution if there isn't an option to sell the company. In such cases, a liquidator is appointed to realise a company’s assets and pay off its creditors. Any surplus monies are then distributed to the company’s shareholders.

A Creditors Voluntary Liquidation (CVL) is often associated with companies in financial distress where a company’s creditors exceed its assets. This is an insolvent liquidation where the company is wound down by a licensed insolvency practitioner appointed by shareholders. The company's assets are sold (liquidated) and the proceeds of assets is redistributed amongst creditors.

There may come a time when a company has come to the end of its life and the directors and shareholders wish to close the business. A liquidation facilitates the release of company assets and cash value without needing to find a buyer.

Employee Ownership Trusts (EOT)

The use of Employee Ownership Trusts as an exit strategy has increased significantly in recent years, particularly following the changes made by the government to introduce tax legislation which incentivises their use.

Family succession

Passing your business onto family members can be an effective way to ensure its future continuity and legacy. However, sometimes family succession can be complicated if there are multiple family members, and it can also be emotive. Indeed, for many owners there may not be any interest from family members to take on the business.

Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process that companies go through when they decide to 'go public' by selling their shares in the market. They also enable companies to raise money for future investment in the public market.