- Exit choice: shut down your business and leave.
There are times when bad trading conditions or money problems may force you to close your business, but that's not always a choice.
When the following things happen, ending your business may be the best thing to do:
• your business may depend too much on your skills to make a sale possible;
• Family members may not want to take over;
• the economy may not be doing well;
• you may have to retire before you've had a chance to grow the business enough to make a different exit possible; Professionals like a lawyer, accountant, or financial expert can help you figure out what your options are in this situation.
The way you shut down your business will depend on the type of business arrangement you choose. You should tell the right people that your business is closing down, and then you should figure out and pay off any outstanding bills and liabilities, like GST, Income Tax.
If you hire people, you will also have to give them the right amount of notice and any unpaid wages or perks.
Learn more about how to close a business or sell it.
1. An overview
Whether you leave your business on time or because of something out of your control, the choices you make when you first start it can affect how easy it is for you to leave.
A well-thought-out exit plan can help you get the most money out of your business and market it well to people who might want to buy it or invest in it.
This guide gives you a general idea of how the choices you make can affect your ability to leave the business smoothly. It also talks about the different ways to leave the company and lists the pros and cons of each.
2. Why do you need a plan for Exit?
When you carefully plan your exit from the business, you can:
• make the business fit the best for your chosen exit option, which increases the value you get from it;
• train successors if they come from within the business;
• leave at a time of your choosing, when the business is doing well and the market is favorable;
In an ideal world, your start-up business plan should include a way to get out of the business. Then you can look it over and make changes whenever you make your yearly business plan and budget. You can also lead your business in the way that your exit option requires.
If you're in charge of a current business that doesn't have an exit plan, you might want to think about what your ideal way out would be and whether you could change how you run your business to make that happen.
How you leave the business can affect:
• how much you and the other shareholders get paid;
• whether you get paid in cash, over time, or in installments;
• how well the business and its products or services do in the future;
• whether you stay involved with or in charge of your business;
• your tax obligations.
3. Making choices that could affect your exit
The choices you make today will have a big effect on how you leave the business in the future.
Important things to think about are:
• Business form: The legal structure you pick for your business can limit your ways to get out of it and change how possible buyers see it.
• Articles of Association: These spell out how the business should be run. They might limit what the
business can and can't do if they are too strict. This might turn off buyers or investors who want to spread their money around.
• Partnership agreements: These may spell out what will happen if one of the partners wants to leave the business, say because they are sick or want to retire.
• Property agreements are generally hard to get out of if you don't have the right break clauses or the ability to give your agreement to someone else.
People who own shares of a business can make it harder for an outside investor or buyer to take it over if those shareholders have vote or preferential rights.
• Capital and control structure: Having simple structures in place can help your business look better and make it easier to sell.
• How to do your accounting. Having good accounting will make investors and possible buyers trust your business more, which will make the sales process easier.
• Contracts with employees, customers, and suppliers. Having clear, simple contracts for all business relationships can help keep disagreements at bay, make roles clear, and make it easy for potential buyers to understand what they would be getting into.
4. Option to Exit: family succession
if you give or sell your business to a family member, you can still be involved with it and pass the assets on to your children.
You should get your kids involved in the business as soon as possible if you want them to understand how it works before you give it to them.
Sometimes it's just as important to let them work for other companies because that will give those new strategic insights into your job.
On the other hand, you can't be sure that a family member will want to take over the business. If you're starting a business with the clear goal of passing it on to your family, you should really think about how you can get family members to invest in the business early on.
Get help.
A business adviser or non-executive director can help you make sure that your feelings don't get in the way of your thinking and that your thoughts are fair and logical.
They can help you figure out important things like
• Will the passing on of the business to a family member cause problems in the business or the family?
• Will it give you a safe financial future, or should you look at other ways to get out of the business to
make the most money in the future?
• Will it save me money on taxes?
• How will the picked successor's tax obligations change after the death of a family member?
• How should you divide up the shares between the heir and other family members?
5. Getting out of the business: selling it
selling your businesses the most popular way to Exit. You can sell to another business, an individual investor, your staff, or your bosses.
Sales at trade
when you sell your business (or parts of it) to someone else who works in the same field as you, this is called a trade deal.
It might be hard to make a trade sale if your business isn't already a limited company. Whether the business is worth a lot or not will depend a lot on your skills and business connections. You could also miss out on very important tax breaks. Also, the business might look less established, which could make it less appealing to people who want to buy it.
If your business wasn't already a limited company, you might want to think about becoming one so that it has its legal name.
This might also make it possible to join. You might have to stay with the business longer than if you just made a trade sale, though.
Getting bought out
It's also possible to sell your company to managers or workers. This is called a management buyout.
This choice might not be as profitable as selling to a trade buyer because your workers or managers might not be able to get the money they need to buy the business. You should also think about what will happen if your bosses or employees don't buy the business. For example, you should think about how you will deal with employees who are unhappy or don't want to work hard.
6. Way out: let your business float
By making it easy to sell all or part of your stake in the business, floating your business (selling shares on the stock market) lets you get back the money you put into it.
But any money that leaves the business is probably only going to be part of it. People who want to invest will be wary if you sell all of your shares, and you might not be able to do that.
Floats will also have an effect on other buyers or shareholders who already own shares. The shareholder's agreement could give current shareholders the right to vote or be re-elected before new shareholders, who could make a float harder or lower the amount you can get.
A lot of businesses probably won't be able to float because they won't be able to afford the growth they need to draw investors.
Investment in venture capital
getting venture capital funding is another option besides going public on the stock market. Venture capital companies or private investors give your business short- to medium-term loans in exchange for a stake in the business. Venture capital funding can be used to build or grow a business. It can also be used to get out of the business through a management buy-out or buy-in or by putting it on the stock market. You should find out exactly what return a venture capital firm is looking for, along with how they plan to get their money back and leave the business in the future. After you get the money, you'll need to show that you can consistently make good money over several years and make a business plan that explains how you'll continue to grow quickly.
Because flotation isn't good for most businesses, it's important to think about other ways to get out. A trade sale might be a better choice.