There comes a time in every business owner’s life when the answer to the question, what next, is not immediately obvious. For most of your business life you have made the decision, plunged in and taken the route you knew was right. But sooner or later age, or just other interests, start to cloud the path ahead.
It’s important to know, when this happens, that you have options and not to be forced down a route that you think is the only one open to you. If you are asking, what are my options for exiting my business, then Entrepreneurs Hub would be happy to work with you to assess what options are open to you. Here are six of the most common options every business owner should be aware of:
1. Just walk away
There are generally two reactions to this. Some will recoil in shock at the suggestion and others will resignedly shrug believing it to be the only regrettable option. In either case I would suggest, don’t be too hasty. It is worth considering, if for no other reason than to resolve in your mind that it is not a route you want to pursue and why – but then, in a very small number of cases, it might actually be the better option.
On the other hand, I recall a conversation I had with a client who had let his management team take over the business. Unfortunately, they had not done well, and it was in decline. The owner felt like he had no option but to just close it down. I was able to convince him to try, knowing that with a small investment the business was still saleable. In the end we were able to sell the business for significantly more than he would have got by just walking away.
2. Recruit or promote
This may initially seem like the ideal compromise. You get to step away a bit, but you retain an interest and you retain control. However, there are two very good reasons why this may not be as ideal as it sounds.
As one of my clients once told me… “I’d never stop thinking about the business, even when I am on holiday it would still be on my mind.” And as his wife keenly observed, “You have to know when you’ve won. You’ve built a great asset portfolio for your family, you don’t need to keep chasing the next deal.”
That said, of course, if you find the right person and have the right mind-set it can work well. But this is a rare combination indeed.
The UK has a proud history of family succession in business, by reputation at least. The reality though is not so clear cut. Some research by the Family Institute some years ago found that only 30% of second-generation businesses survive, this falls to 12% in the third generation and only 4% in the fourth.
You may feel some pressure or desire to keep it in the family, but you need to be honest with yourself and each other. If they don’t have the same passion for the business as you deep down, it is unlikely to end well.
If you have a strong management team, this may seem like an attractive option – but a word of warning. If any acquirer of your business needs to borrow heavily to fund the acquisition it will be the lender that determines value.
5. Private Equity
This is a very interesting option with multiple benefits for companies who are successful. But it comes with very specific criteria and conditions that mean it is not suitable for all. Every Private Equity investor is looking for something a bit different depending on their aims and current portfolio, but they all share a common like for businesses with robust and dependable business models, with a clear growth opportunity and usually with profits of at least £500k plus.
The main sticking point with Private Equity for most business owners is the requirement for an extended involvement in the business. However, if you are in a position to commit to this then the rewards can be great.
6. Trade Sale
By far the most common and often most successful option for all parties. You sell the shares in your business to another business. It allows you to walk away with a fixed value and move on, and it allows the company to benefit from multiple synergies gained by combining the operation of two businesses.
Wherever you are at in your thinking, it would be great to speak with you in 2021. Entrepreneurs Hub will give you honest and practical advice – we don’t sell the sparkle, just the truth. Even if you think you have no options left, an independent third-party, like ourselves, can help you see alternatives you may not have considered.
This content has been adapted from our popular, confidential webinar series How To Build Value And Sell Your Business For The Best Price. For more details or to book a space on the next event please go to our events page
Alternatively download our free eBook – How to avoid the pitfalls when selling a company