How to come up with an Exit plan for your Business?
Running a well-established business and reaching the pinnacle of success is a dream of every aspiring entrepreneur. In the United Kingdom, more and more people are investing their capital in running their dream businesses. According to the statistics, there is a massive increase of 197,000 businesses, since 2016 and there was a record of around 5.7 million businesses at the beginning of 2017. This is something incredible.
However, the strategies you create before getting into the business world is always towards the achievement of the targeted organisational goals. Generating leads, earning higher revenues and building strong goodwill in the existing business market of the United Kingdom are some of the key objectives of a budding business owner.
But being a savvy entrepreneur, it is also imperative to create a clear and well-documented exit plan for your business in the initial phase. This may seem strange, but all good companies prepare their exit strategy before even getting started.
An exit strategy is something that every potential investor looks for before pouring their money into any business. They always want to know your long-term business plan along with your exit strategy. And this makes sense as well. When you decide to start a business, you and your investors want to know the procedure of getting the money out of an organisation. In fact, most of the entrepreneurs have their exit plans, and you can find hundreds of businesses for sale in the United Kingdom.
In simple terms, developing an exit strategy gives you control over your business’s future. Below are the most convincing exit strategies for a small business. Have a look at these strategies and pick the one that best fits your requirements:
This is one of the most common exit strategies for small businesses. Under this, a business owner sells all the assets such as furniture, equipment, stock, etc. This strategy comes into action when your business is failing, and you want to revive from your losses. Many small business owners find it relevant to liquidate all the assets to pay off their creditors, investors and shareholders. Here are the main categories of businesses that liquidate their assets:
- All the assets used indirectly in the generation of Income: This includes the fixtures, furniture and equipment of a service business such as insurance agency, cleaning company, etc.
- Assets used as tools in the direct generation of income: This includes manufacturing companies, restaurants, café, etc. The assets used in these businesses can be sold to the same type of businesses.
- Assets those produce income directly: These are independently owned and operated stores, and retail shops. Such businesses don’t liquidate their assets until they are at the verge of bankruptcy.
Benefits of Liquidation
- It is a simple, easy-to-process and clean strategy.
- No transition plan is required
- Sell all your assets to the potential buyer.
- Easy to pay off all the creditors and shareholders
- Easy and Quick way to exit a business.
- No certainty (Whether you will get the full value of your business with the sale of all your assets).
- It provides the lowest return on investment, especially when you are liquidating the assets of your second-hand business.
- Struggle in getting good value for items.
Since liquidation of assets generates less value than other exit plans, you can ask your creditors and shareholders, and get their final approval. You can also sell your goods in bulk to a trusted dealer or hold an auction.
2. Liquidation Over Time
In this exit strategy, the business owner extracts all of the profits out of business over time before winding up the business. Instead of reinvesting the profits in the expansion of the firm, he/she liquidates all the profits such as dividends and salary draws over some years before selling or closing the business.
This type of exit strategy suits best for those who wish to enhance their current lifestyle rather than expanding their business.
- Rather than waiting for the funds from selling the business, you can extract your profits on an ongoing basis for personal use.
- Simple and Easy way to exit.
- Minimises growth potential of the business
- Increase the value of the company and will be taxed as capital gains during the business selling process.
- Salary will be taxed as a personal income.
3. Consider an Initial Public Offering
This involves selling a part of your business in the public markets. Being an entrepreneur, everyone wants to grow their business and bring it on the public markets to establish a strong reputation. When you introduce your company to an IPO (Initial Public Offering), you will get a better opportunity to yield financial benefits before eventually winding up your company.
However, this seems tricky because you have to consider many regulations and responsibilities that come with being a public company. Along with this, you need to convince your investors that your company is doing pretty good and is stock market-ready. Well, this could take years, so make sure you evolve your business strategies accordingly, including the way it is managed and organised.
In a nutshell, considering an IPO is challenging for small businesses, but it could be one of your best exit moves if you plan everything and prepare your business well in time.
4. Sell your Business to your Family Member
This exit strategy works for those who want to keep their business in the family in order to maintain their legacy and livelihood for their heirs.
- A smooth transition of a business
- Play a role as an advisory in the business
- Reliable exit move.
- It can be difficult to educate the essence of the business to the family member.
- A family member may not have the skills to run a business successfully.
5. Sell to Another Potential Business
Most of the entrepreneurs in the United Kingdom find it profitable to buy other businesses to expand their dimensions and grow higher in the competitive business market. You can leverage this situation by selling your business privately to other businesses before leaving the industry.
- Ensures quick sale
- Maximise your profit if a competing business purchases your company.
- Save your employee’s jobs.
- They may access your financial information and customer list.
- Fold your business to minimise the competition.
This particular exit strategy works better when you target your potential business buyer in advance and put your company accordingly.
The best and most potential exit strategy is the one that matches your small business goals and financial requirements. The decision of starting a business or making an exit completely depends on you. Just make sure your exit strategy maximise your returns. You can also explore businesses for sale in the United Kingdom to minimise the risk of failure.
Whatever you do, make sure you plan everything in order to get the most out of your business.