Exploring your business exit options

As a business owner, deciding how and when to exit your business is one of the most significant decisions you will face. Whether you’re considering retirement, moving on to new ventures, or simply looking to realise the value of your business, understanding your exit options is crucial.

Selling to an external buyer

An open market sale involves selling your business to an external buyer, which might be a competitor, a company looking to expand their business offering, a private equity or venture capital firm, or an individual buyer.

Pros: An open market sale can often yield the highest financial return, especially if your business is in a growing or lucrative market. It also provides a clean break, allowing the owner to step away from the business entirely.

Cons: Finding the right buyer can be tricky and appointing the right specialist to assist you in this process is key to maximising your return. The sale process will also involve significant due diligence on the buyer’s behalf, so you must prepare for every aspect of your business to be scrutinised. Preparation for an open market sale can often take months or even years.

Alternatively, you may decide to pass the reins onto the next generation through succession planning. You can read more about this process here.

Management buy-out (MBO) or management buy-in (MBI)

Management buyouts and buy-ins involve selling the business to the existing management team (MBO) or an external management team (MBI).

Pros: Both options provide leadership continuity, which can be reassuring for employees, customers and suppliers. The existing management team already understands the business, reducing the learning curve and ensuring a smoother transition.

Cons: Financing a buy-in or buy-out can be challenging, especially for small or medium-sized businesses. The management team may need to secure external funding, which can complicate the process. The vendor is also commonly expected to accept terms that will see the sale consideration being paid out as deferred consideration over a period of time following completion, often based on an earn-out linked to ongoing business performance.

Employee Benefit Trusts (EBTs) and Employee Ownership Trusts (EOTs)

Employee Benefit Trusts (EBTs) hold shares in the business for the benefit of employees, whilst Employee Ownership Trusts (EOTs) enable the transfer of ownership to employees, typically leading to a fully employee-owned business.

Pros: Both EBTs and EOTs can help secure the future of the business by aligning employee interests with its success, potentially leading to increased motivation and productivity. They can also offer significant tax advantages, such as relief from Capital Gains Tax.

Cons: Establishing and maintaining these kinds of trusts can be complex. Setting up either one involves creating a trust deed, in addition to a raft of further transaction documents, as well as requiring legal oversight to ensure compliance.

Liquidation

Liquidation involves closing down your business and selling off all assets.

Pros: It can be the most straightforward and practical option if the business has no succession path or buyer. Owners also have the opportunity to settle any debts or bills that are owed.

Cons: Liquidation is a final decision. It can have a sudden impact on staff and clients, which may affect relationships negatively. Any profit must go to creditors and shareholders, so it’s unlikely to deliver high financial returns.

The importance of professional advice

The right exit strategy for you and your business will depend on a wide range of factors. Whatever path you choose, having an expert legal team on hand is vital to maximising business value and ensuring a smooth transition. Our Corporate, Company & Commercial team is here to guide you every step of the way. For an initial discussion, please do not hesitate to get in touch with Mark Stigwood on 0203 871 0022 or mark.stigwood@attwaters.co.uk.