How to Write an Effective Business Exit Strategy for Small Businesses

Most of us look forward to retiring as we get older, and that means stepping back from the business we've built up. We may decide to pass it on to a keen family member, sell it to a competitor or even close it down completely. Whichever route we opt to go down for our business, it makes sense to start planning well in advance.

Exit strategy for small businesses: four options

We may not quite have decided what that exit route will be, so it's good to consider not just one avenue to go down but rather to have a few options for an exit strategy. There's always the chance we may change our minds, after all. Having solid strategies in place means we can look forward to an easy transition and the maximum financial reward for all that effort over the years.

1. Passing it on to family

You may plan to pass your business on to a son or daughter, niece or nephew etc. No matter how well you get on, it still makes sense to consult a solicitor and accountant to ensure that your own interests are taken care of – both in terms of when you want to exit and what your financial reimbursement will be.

2. Selling the business

Selling shares in your business is usually much more tax efficient than getting rid of the assets and the trade itself (although you will have to pay capital gains tax on any profits). Competitors may be interested in buying – the more interest you have, the higher price you'll be able to demand. Get together with your accountant to ensure no anomalies come to light when the buyer does their due diligence. Selling can take a couple of years by the time the paperwork is ironed out.

3. Agreeing to a management takeover

It may be that your current management team wants to buy the business. It could also be that an 'outside' team wants to come in and take over. Or it could be a combination of the two. A buy-out by existing managers can be the easiest way to go about this, especially if those who want to take over are experienced and know what they're doing business-wise.

4. Winding the business down

Members Voluntary Liquidation (MVL) is a relatively common exit strategy for business owners who don't have an obvious family member willing to take over at the helm. Again, if no management buy-out is forthcoming, or if the business doesn't look like it's going to be profitable for much longer, then closing it sooner rather than later could be a good option. In this scenario, an accountant will need to be employed to sort out employee tax, pensions and any premises belonging to the business.

Exit strategy for small businesses: the benefits

Having an exit plan (or two) early on in your business career helps you plan your long-term goals, giving you defined outcomes to work towards. Good exit planning will also impress investors from the outset, especially if it's accompanied by an excellent financial strategy. In other words, the business will be deemed more financially valuable if a clear exit plan is in place.

Exit strategy for small businesses: tips

It's a good idea to get your financials in order well before you intend to sell. In addition, an accountant can advise on any particular areas that can improve profits sooner rather than later. They can also give you a business valuation to work from and on which to base your expectations.

Get in touch

Are you thinking about exiting your business at any time in the near future? If so, the team here at Keith Graham Chartered Accountants and Registered Auditors has the knowledge and experience to assist you. 

We can help you sell for maximum profit and allow the business to transition smoothly to its next stage. Please get in touch for more information. Tel: 01252 312561 or email info@keith-graham.co.uk.