The importance of having a business exit strategy  

by | Sep 9, 2023

Share this article

Seneca

By Shaun Barton, a partner at Company Closure

Developing a clear, dynamic exit strategy simplifies not only the process of leaving your business when the time comes but also how you operate it. This is true whether your business is a brand new start-up or you have taken over the reins of an existing company. 

A business exit plan provides a broad roadmap for your business to follow but it is important to treat it as a dynamic rather than a static document – sufficiently so to change course as and when necessary during its growth and development.  

 
 

Some business owners know when they want to exit their business from the day they start running it and you may also have a clear idea of when you want to leave. So what should an effective business exit strategy look like? 

What should a business exit plan include? 

A good exit plan will include an approximate timeline for leaving the business. This might be led by a retirement date, or perhaps a time when you want to pass on control of the business to a family member. 

 
 

With various ways to exit a business, you also need to consider which would be the most appropriate route to take. It might be selling the business on the open market, for instance, conducting a management buy-out, or maybe closing your company down via solvent liquidation. 

This type of planning needs to be undertaken early on in your business journey so that it reaches its full potential and achieves optimal value. It will take time to build up trade and prepare well, so what type of exit might be most suitable for you? 

Different ways to exit your business 

 
 

These are just three of the ways you could leave your business when the time is right: 

Selling the business 

Selling a business involves valuing and marketing to the right demographic. Formulating an exit plan early on helps you prepare the business for sale over time, build up your reputation, and increase business value. 

Management buyout (MBO) 

Rather than selling on the open market, you might choose to sell your business to the existing management. This can be a good option if you have a cohesive management team that has been involved in the business for some time, and they have the necessary skills to make a success of it. 

Members’ Voluntary Liquidation (MVL) 

Solvent liquidation involves realising the business’ assets and closing it down. It is typically appropriate if a business has more than £25,000 in assets and offers several important benefits including distributions being taxed as capital rather than income. A further significant advantage of MVL is that you can reduce your tax liability to an effective rate of 10% under Asset Disposal Relief rules. 

Essential steps for an effective business exit strategy 

  • Consider and document your main objectives for running your business 
  • Determine an approximate timeline for your exit 
  • Decide on your exit route of preference, noting that this could change over time 
  • Know the value of your business when the plan is complete – this provides a benchmark for increasing value 
  • Consider training a successor if you run a family business 
  • Review your exit plan regularly and amend it where appropriate 

What are the advantages of business exit planning? 

Helps you make strategic decisions 

Your exit plan will aid in decision-making – for example, it can guide you towards the most suitable type of funding or determine how many staff you need to take on. It helps you become clear on your goals, making high-level management more straightforward as you already know the ultimate objective. 

Aids in achieving optimal value and profitability 

An exit strategy provides a route to achieving a high value for the business should you decide to sell it. Alternatively, if you decide that solvent liquidation is the preferable route, it helps your business reach its full potential in terms of profitability. 

Provides stability in economic uncertainty 

Exit planning can address many issues that arise during uncertain economic times – succession planning is a good example as you can train and prepare your successor for taking over the business whilst remaining a stable entity in your market. 

Protects jobs 

Safeguarding employee interests is a key responsibility when you exit your business and is an important element of your strategy. If you decide to sell the business, TUPE regulations, the Transfer of Undertakings (Protection of Employment), protect employee rights and contracts before, during, and after the transfer process.  

Developing a business exit strategy early 

Formulating your exit plan early offers stability if market conditions threaten the business’ financial stability at any point. Unexpected issues can quickly derail business success by reducing market value and creating uncertainty for the future. 

So it is never too early to think about this vital part of running your business – one that could lead to you achieving your main goals and reaping the rewards of many years of hard work.  

This article was written by Shaun Barton, a partner at Company Closure and boasts a wealth of experience in helping directors of distressed companies understand their options. A director-facing adviser, Shaun is often the first point of contact for business owners in financial distress, consistently delivering expert advice when it is needed the most. 

Share this article

Related articles

Sign up to the IFA Magazine Newsletter

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, that fits perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode

x