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What Is A Business Exit Plan And Why Should You Have One?

Leaving a business when you are the owner isn’t as simple as handing over your workload and walking away. With so many parts to business ownership, a strategy and process in the form of a business exit plan helps make the process smooth.

Putting together a document for this can be complicated because there are many things to consider. Lester Brunt are experts in corporate planning and business exit strategies and offer a bespoke service to help you create an exit plan for when you might need it.

What is a Business Exit Plan?

Running a business is challenging but incredibly rewarding, and while you are starting up and flying high, you are unlikely to be thinking about ever leaving the business behind. However, it is likely that a day will come when you decide to take a step back, and you will want to exit the business. This is where a business exit plan becomes incredibly important.

A business exit strategy is a written plan that outlines how business owners or investors intend to exit or liquidate their ownership stake in a company. It serves as a strategic roadmap for maximising returns on investment, minimising risks, and ensuring a smooth transition of ownership.

These strategy documents are typically created when starting or investing in a business and can be implemented in circumstances, such as retirement, selling the business to another entity, passing it on to family members, or in the event of unforeseen challenges or opportunities.

The exit strategy put in place will depend on factors such as the business’s growth trajectory, market conditions, industry dynamics, and the owner’s personal and financial objectives. A business plan is bespoke to each company and each individual, meaning that no two strategies are the same, even within one company. This is why it can be important to work with experienced specialists, as they will ensure no stone is left unturned for your specific circumstances.

What Are Common Exit Strategies Used?

Despite each business exit plan being based on your individual situation, there are a few strategies that are a common foundation for the plan.

Selling The Business Outright

As the name says on the tin, this strategy involves you selling your business to another individual, company or investor. In this event, the business owner(s) will receive a large lump sum in exchange for the business. This will allow the owners to exit the business entirely with a clean break.

Merging With Another Company

If you decide to choose this strategy, it will involve merging your business with another company to create one entity. Usually, this will be a strategic move as it can achieve synergies, expand market share, or enhance competitive advantage. In this scenario, both owners of the business will exchange their ownership stakes for shares in the newly formed company.

Going Public Through an Initial Public Offering (IPO)

This is the process in which a privately held company offers its shares to the public for the first time, making the company available on the stock exchange. This option provides significant liquidity for the business owners and investors while making money that can be invested back into the company for growth initiatives. However, there are additional regulatory compliance and transparency requirements that need to be considered, as well as a potential loss of control as the shareholders become accountable.

Transferring Ownership to Employees through an Employee Stock Ownership Plan (ESOP)

This strategy is predominantly used as a retirement plan as it allows employees of the business to acquire ownership of the company through the allocation of shares. This option can be used as an exit strategy, or for those who wish to gradually transfer ownership while giving employees a stake in the success of the company.

This option offers tax benefits for both business owners and employees and often helps a company maintain its culture.

Why Do You Need A Business Exit Plan?

Creating a business exit plan is crucial for maximising value, mitigating risks, and achieving personal and financial goals when leaving the business.

By identifying areas for growth and operational improvements, owners can enhance the business’s attractiveness to potential buyers or investors. Planning ahead allows for the optimisation of financial performance and market position, ensuring a smooth transition and maximising value upon exit.

A business exit plan facilitates succession planning and preserves the business’s legacy, which can be of importance to some business owners. Knowing who you want to succeed you, allows you to train them for the role, transfer knowledge, and establish clear processes.

Usually, this also enables owners to ensure continuity and stability for the business, whether transitioning ownership to family members, key employees, or external buyers.

If you are looking to sell your business upon leaving, a well-crafted exit strategy also makes the business more appealing to investors or buyers, as it demonstrates its long-term viability, growth potential, and scalability. This can lead to more favourable terms and valuation during the exit transaction.

A business exit plan is often a fluid document that constantly needs updating. This allows for the plan to follow market trends so that owners can optimise their plans to ensure they receive the best outcome. Whether retiring comfortably, pursuing other ventures, or providing for family members, having a clear exit strategy aligns personal and financial objectives with the timing and structure of the exit so that you can leave knowing you have what you need.

How Can Lester Brunt Help?

At Lester Brunt, we have over 25 years of experience helping families and businesses ensure their finances are in order.

We know that business exit plans are more than money, they are about doing what is right for your business and the people within it which is why we will get to know you and your aims and desires, as well as your business and those involved.

Our years of experience allow us to be confident in what we do and have allowed us to build a wealth of knowledge across a broad range of industries. This means that we leave no stone unturned when devising your business exit plan. There is a lot to think about when creating this strategy document, so our specialists will be with you every step of the way to give up-to-date guidance.

If you are a business owner in need of a business exit plan, book a no-obligation consultation with our team to discuss what you are looking for and how we can help.

Call our friendly team on 01202 695 801 or complete our contact form and we will get back to you to arrange a date and time for you to visit us.

Please note that business exit planning may include the referral to a service that is separate and distinct to those offered by Lester Brunt and St. James’s Place.

Written By Toby Winyard

Financial Adviser

Lester Brunt Wealth Management

Lester Brunt Wealth Management is a trading name of Lester Brunt Wealth Management Ltd

SJP Approved 16/04/2024