Exit plans – what are the options?

At CMC we are absolutely convinced that all business owners should have an exit plan and in so doing, the owner will need to consider all of the options that are open to him. If you want to know why exit plan is essential, please read this earlier blog.

This blog looks at the various exit options an owner should consider. Of course the sale of the business is the main option, but a sale can come in many variants and there also other ways to allow the business owner to step back from the business;

  1. Trade Sale; selling to another business is generally the most immediately lucrative exit option. Trade buyers will be more inclined to pay the highest price as they will understand the marketplace with its risks and opportunities.
  2. Management buy-out (or MBO); this involves existing management buying the business. Often this will involve the price being paid over a number of years and with the seller staying in the business for some of this time. Financing these sort of deals requires specialist input, but lenders see the MBO team’s experience as a positive factor.
  3. Family succession; in some ways this is the most obvious answer, assuming family members work in the business. However it is not without risk as there can be difficult transition issues as the new generation takes over, and the owner exits.
  4. Management buy-ins (or MBI); completely new management can make an offer to buy a business in the same way as a trade buyer. However the issue with MBIs is that often the incoming management dont have sufficient capital resources and have to borrow cash, and pay the owner over a period of years, which may not be ideal.
  5. Non-executive role for owner; in this exit option, the owner retains ownership but allows his existing management team to run the business. In effect the owner becomes a non-executive chairman providing part time help and support, whilst he continues to enjoy an income (salary and/or dividends).

All of these exit plans have their own “pros and cons” depending on the particular requirements of the owner, and the business. Typical factors to consider are – the business size, market dynamics, the dependance on the owner, strength of existing management, tax, and the owner’s personal timescales. Early planning will allow the business owner to both decide on the type of exit that will suit them best and allow time for the business to be optimised prior to exit.

CMC have over twenty years experience of supporting owners through this transition, so please give CMC a call if you want to understand your exit options.

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