- Search interest in “business exit strategy” increased by 43%
- Four in 10 UK business owners do not have a retirement or exit plan
- BPI Asset Disposal Solutions advises the importance of an exit plan
With the current rises in inflation and an upcoming general election potentially accelerating business owners to sell up or end their involvement with their company, business owners should be more considerate about their exit planning than ever before.
While there has been a 14.2% increase in business dissolutions in the UK compared to last year, in a recent survey, BPI Asset Disposal Solutions found that four in 10 UK business owners do not have a retirement plan or exit strategy in place.
With this in mind and following a 43% increase in online interest for “business exit strategy” in August, BPI has developed a guide for business owners thinking about exiting a business, based on frequently searched queries online.
1. What is a business exit plan?
A business exit plan is a formal document describing how you plan to end your involvement with a business. The exit plan will lay out key terms such as your planned length of involvement, the type of exit strategy you have chosen, a detailed overview of the business’s financial situation and any other legal considerations.
A clear exit plan should consider your business’s present and future value; having a written assertion of the financial worth will keep you focused on maximising your profits and reaching your financial goals.
Business exit plans can change due to unpredictable circumstances, so having multiple exit strategies in a formal document can help you prepare for this. In addition, leaving a business can sometimes be overwhelming, so a well-thought-out and step-by-step approach will help to minimise stress.
2. How to choose the right exit strategy for your business
A business exit strategy is integral to your overall exit plan. Your company’s ideal exit strategy depends on various elements such as size, industry, market value, company structure and legal and tax implications.
Some of the most common business exit strategies include:
- Liquidating your business assets,
- Passing the business to family,
- A merger or acquisition,
- Management or employee buyouts,
- Initial Public Offering (IPO),
- Selling your majority share to investors or partners,
- Winding down trading,
- Striking the company off the Company Register.
To choose the best exit strategy for your business, consult a financial advisor about your overarching goals when you exit the business. For example, if you aim to raise funds for an early retirement, are looking to reduce your day-to-day involvement with the company or are planning to include your family in the management structure.
One decisive way to determine the best exit strategy is to ask yourself if you are willing to hand over the business entirely. Some business owners may, understandably, find it difficult to cut ties with the company and employees after many years of hard work and choose to maintain some involvement.
If you have a close-knit team of employees, speak openly about your plans to exit the business to understand their preferences. This discussion could reveal their preferred leadership and management styles to help you decide who (if anyone) could be well-placed to take over the running of the organisation.
3. What are common exit strategies for large businesses?
Larger and more established businesses with well-established management teams may find a management buy-out (MBO) the best option, as the existing management has first-hand knowledge of the workings of the business resulting in a smooth transition.
Large businesses with substantial market value and high earning potential are well-suited to sell their majority share to investors, allowing you to remain involved with the business but have extra free time during retirement.
There are also different types of closing options for businesses that have become insolvent, such as putting your company into administration, and your solicitor will be able to help you with this.
4. What are the best exit strategies for small or medium businesses?
A small or medium business owner may choose liquidation to raise funds for their retirement. This would cease the business’s trading completely, especially if they only have a small team of employees or if a suitable buyer to take over the business cannot be identified.
A merger where two enterprises are consolidated into one larger company could suit medium business owners in a mutually beneficial way. This transition could allow you to step back from a Director position, take a more minor position within the company, or exit the business entirely. Meanwhile, the business itself can grow under new management.
One of the most cost-effective ways to close your small business is to slow down trading to ‘wind down’ your business and allow it to become dormant. Business owners can stop paying taxes if the business is not receiving income or carrying on with trading activity. However, it is essential to note that specific administrative duties will remain, such as annual accounts and a confirmation statement to Companies House.
5. When is the right time to exit a business?
There are many motivations for ending your involvement with your company. Business owners may choose to sell or dissolve their company to relieve stress or simply to have time to enjoy other endeavours. Others may decide that they want their family members to inherit the business or reduce their share to allow others to manage the day-to-day tasks.
BPI Asset Disposal Solutions recently surveyed business owners to discover their motivations for retiring in 2023; the most common answer from 55% of participants is that they want to retire without worrying about bills. Other popular choices included 48% wanting to retire to travel the world and 20% wanting to grow vegetables or start an allotment.
Furthermore, the study revealed that the most popular age range for retirement was between 61 and 70 (of those with an exit strategy in place), which may give owners a useful ballpark age for when they exit from the company.⁵
6. When should you plan to exit from your company?
Exiting your businesses may seem far away right now but, you can never be too prepared to end your involvement with your company.
Ideally, you should decide on a business exit strategy as early as possible to solidify key long-term goals that will motivate you to have the business in the best position when it comes to your exit. These may be sales goals, for example, ‘Increase revenue by 50% in the next ten years’, or growth goals, ‘Have a team of 10 staff in the next five years,’ or even personal goals, ‘Retire early with sufficient funds in 15 years.’
It is also essential to give employees, especially higher management, as much notice as possible about your proposed timelines so they can create their career plans. This could open conversations about a potential Management Buy Out (MGO). Speaking to a financial advisor will help you to determine the best timeline for you and help you to decide if retiring early could be possible.
7. What steps should you take before undertaking your business exit strategy?
While exiting a business can be a complicated topic, there are some critical steps that every owner needs to take to ensure a smooth transition.
One of the most important things to do to prepare is to have your finances in order; ensure you have a comprehensive understanding of the value of your assets and identify any debts, creditors or investors to pay back. Business owners must also inform HMRC if their company has stopped employing people.
You must appoint a new Director if your company no longer has one, and you should let your employees know before any business changes so they can prepare, i.e. if the business is closing and they are being made redundant.
If the business ceases trading, issuing company-wide messages to inform your customers and broader audience is a great idea, especially if you have strong existing relationships.
8. How can you find out the value of your business?
Business owners should speak to a business appraiser who can estimate the total value of the business and its assets before selling or retiring.
All financial records must be up-to-date to get an accurate picture of how much you could earn and that any financial issues (an appraiser can identify that) are resolved through long-term strategies, such as diversifying the business, increasing marketing material, internal training and creating new income streams.
A short-term solution to free up finances to improve the business is to take stock of your physical assets, such as construction, manufacturing or IT equipment and sell any redundant assets. Consulting with an expert, such as BPI, will make the valuation process as smooth as possible, helping you to understand and achieve the maximum returns for your machinery and equipment.
9. How can you liquidate business assets?
Business owners may choose to sell their entire business assets due to closing or decide to sell assets to raise funds as part of their retirement or exit strategy. Selling your physical assets (such as vehicles, construction plant and machinery or site accommodation) in second-hand sales helps to give them a new lease of life, as they will be helpful to smaller or growing businesses with a smaller budget or who can’t afford brand-new equipment.
A simple way to sell physical business assets is online, for example, through a bidding platform, as you can set up and track the sale from anywhere with an internet connection. You may create a ‘job lot’ sale and look for one bidder for the entirety of your physical assets or a company closure sale where each one of your assets has it’s own lot for users to bid on.
Selling your business assets allows the sale to maximise your potential profits and quickly sell unwanted or redundant equipment by reaching a large audience of interested buyers.
Business owners should also research tax relief schemes, such as Business Asset Disposal Relief, to reduce their Capital Gains Tax to a rate of 10% when selling machinery or equipment.
10. What are the risks of exiting a business?
There are always potential risks and challenges with exiting a business, no matter which exit strategy you choose.
If you choose to sell your business, the timing is crucial; you should sell when you have an interested party, and the business performance is excelling to showcase the company’s future potential. Missing the perfect economic opportunity could result in a loss of profits.
There is also an expectation for business owners to conduct due diligence. For example, making staff members redundant can bring financial and legal risks if the correct processes are not followed.
There are risks with undervaluing your business assets if you sell these together or separately; this could mean you lose out on a chunk of your retirement fund.
Henry Spencer, Chief Operating Officer at BPI, commented: “Selling your business assets can be one of the most profitable business exit strategies, but owners often feel unsure where to start.
“At BPI, we understand the challenges and emotions associated with a business closure and can help alleviate stress and guide you towards a successful closure. To make the process as hassle-free as possible, we will tailor a disposal solution to suit your unique circumstances.”
