The decisions you make when you first go into business, whether it be starting from scratch or buying a going concern, can really impact on how easy it is for you to exit your business in the future.
At some point or another, it is likely that a business owner will exit their business. This can be for a variety of reasons: retirement, decreasing profits or just deciding to make the most of your success – to name a few.
A well-thought-out exit strategy can help business owners effectively market their business to potential buyers or investors and maximise the sale price.
It may sound ridiculous, but ideally you should plan your exit from the get-go, incorporating it as a vital part of your business plan.
You can then review and revise your plan as conditions change and steer it in the direction that best suits your exit.
By carefully planning your exit, you can mould the business, maximise your revenue and exit at a time that suits your personal circumstances, and when the market is advantageous and the business is prospering.
What options are available?
Picking the right exit strategy usually depends on independent circumstances.
And there are plenty of options to choose from:
Selling the business as an ongoing concern in an open market can be one of the most effective and lucrative exit strategies. However, when making this decision, timing is crucial.
The business owner must get their affairs in order and the timing right. The best time to sell a business is when the company is growing and increasing in value.
If your business is failing it will be considerably more difficult to sell. For most people in this position the best option is to close. This means closing up shop, selling off assets, paying any outstanding debts and pocketing whatever is left over.
There are certain legal requirements and tax obligations for closing a business such as notifying your staff about the termination of their employment, cancelling your business name and finalising any outstanding tax issues.
For more extreme cases, closing a business may require filing for an official declaration of insolvency – perhaps resulting in bankruptcy.
This option works particularly well with partnerships – for example, if one partner wishes to leave the company and the other does not.
If you choose to transfer your business to someone else, there are certain things you will need to do such as cancelling your Australian Business Number (ABN) and notifying the Australian Taxation Office (ATO) to name a few.
Often, business owners have spent years developing and growing their business – so selling it onto a stranger can be a painful process.
For sentimental business owners, succession planning is often the most appealing option as it involves passing your business on to someone who already works within the company – someone you know and trust.
A smooth succession is all about ensuring the business’s ongoing success through a gradual transfer of control to someone who understands and has an affinity with the enterprise. It involves a great deal of planning and should define exactly who will take over the business, how and when.
Having a formal succession plan can not only maximise your return, but also minimise disruption, allowing business operations to continue running as smoothly as possible.