Exit strategy 2

“You’ll find plenty of advice on building a successful business, but people don’t talk so much about how to leave it behind. And yet there are many good reasons for wanting to exit a business. Maybe you’ve found a better opportunity elsewhere, and want to start a new venture. Maybe you want to retire or scale back. Maybe your business has just run its course, and you don’t have the passion for it any more. Maybe you need to raise cash quickly, and selling your business is the only way. Even if you don’t plan to leave any time soon, it’s worth thinking through your exit options and having a strategy in place. Each one has its own particular advantages and disadvantages.”
Last week we made a beginning with looking at different exit strategies and ways we, as a business owner, can work on a successful handing over of our role to somebody else. Andrew Blackman wrote an accessible and interesting article on this subject, from which I quoted his two first suggested exit strategies, which were:
Pass the business on to the next generation and
Management or employee buy-out.
Below a continuation of his suggested exit strategies:
Trade Sale
This option involves selling to another company-perhaps one of your competitors, or a larger firm looking to acquire a subsidiary in your industry.
Advantages
A trade sale can be an efficient way of getting the best price for your business. If another company sees your business as the perfect strategic fit, it may be willing to pay well over the odds.
Disadvantages
You’re not passing your business on to family or employees any more. The buyer could be your arch competitor, or a large company that doesn’t care about your values or goals. Once the deal is done, you may see your business run in a completely different way, merged into a larger firm, or even broken up. The employees you worked with for so long could be laid off.
This doesn’t always happen, of course-there are plenty of amicable trade sales in which the firm continues with little disruption. But the point is that you don’t have control over the destiny of your company, and that can be painful for many business owners.
Also, on a personal level, you sometimes have to sign “non-compete agreements,” pledging not to set up a rival business in the same area for a certain time period or to hire away your old employees, and in some cases they can be quite restrictive.
Tips for Success
To make your business attractive to other companies, you may need to make some tough changes. For example, a company that is overly reliant on your own skills and expertise won’t fetch a good sale price, especially if you’re planning to step aside after the deal is done. Buyers want to see a company that can function independently.
Also make sure your internal processes will stand up to scrutiny from an outsider. A potential buyer will do extensive “due diligence” work to investigate your business and make sure it’s healthy, and the informal practices of some entrepreneurs can derail a deal, or at least reduce the price. Common red flags include “handshake” deals with little or no formal documentation, and employing friends or family members as favors.
Liquidation
After all the work you’ve put into building your business, closing it and selling off all the assets is probably not the exit you had in mind. Generally it’s a last resort, when the business is failing and the other exit options are not viable. Here’s a look at when it’s a good idea, and what the disadvantages are.
Advantages
Liquidation is a simple, clean solution. There’s no transition plan to worry about, no buyers to negotiate with. You just list all your assets and sell them off, either to customers, competitors and suppliers, or in an auction. Anything that’s left from the proceeds of the sale, after paying off all your creditors and any other shareholders in the business, belongs to you. It can be a quick way to exit a business and extract at least some of the value.
To be continued

 

Ton Haverkort
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