There are many different types of exit strategies. Otherwise known as ‘succession plans’, exit strategies are an essential business planning tool that every business owner should employ. Whether you realise it or not, no one can work in their business forever. An exit strategy outlines the best possible succession plan for yourself as the current business owner, and it’s worth the time and effort when it comes to the details.
Different types of exit strategies
There are exit strategies we plan for, and there are some that we are dealt (i.e. liquidation, administration, bankruptcy). But for the purpose of this blog, let’s discuss four different types of exit strategies available to successful business owners. These strategies can be utilised when planning for the future, but all come with their own pros and cons.
- Passing the business onto a family member
For many business owners, passing the fruits of their hard work to a loved one is the ideal succession plan. It allows the family business to remain in the family and holds particular sentimental value.
Pros: The business remains in the family and the current owner can still be involved in a smaller capacity if they so choose
Cons: Your family member may not be the best fit for the role in terms of skills and experience. Your decision may be swayed by emotions, and negatively impact your business in the future. However, the family member may not have the funds or financial capacity to pay the exiting family member. This may cause financial stress to the exiting member in the future.
- Selling the business to a current member of staff
This is an exit strategy that is ideal for most business owners. Not only can this process be a smooth transition, especially when facilitated by an experienced Sydney business broker. But this strategy can minimise disruption overall. We’ll explain more in the pros and cons below.
Pros: The team member already knows the business, which helps a smooth ownership transition take place. There’s also a level of care, loyalty and trust already established between the current owner and the new owner. The new owner also has relationships established with the rest of the team, so there’s a familiar face remaining for existing staff. Finally, there will be no visible disruption to the business and it will be “business as usual”.
Cons: The new buyer knows the business from the inside, and is therefore potentially at an advantage over external buyers, which could negatively affect the sale price. The new buyer may not have the funds or financial capacity to buy the business. Therefore they may ask for vendor finance from the existing owner. This may cause ongoing anxiety for the seller, as the business will need to remain profitable for the loan to be repaid.
- Merger/bolt-on with a competitor
If your business holds a share of the market that is currently wanted by a competitor (whether that’s customers, location, products/services or plant/equipment), this could be a great exit strategy.
Pros: There is the potential for successful negotiation when entering a merger/acquisition. If your competitor values your business and wants to remove it from the market as a competitor in future, this may give you the power to push for a better price.
Cons: If there is little interest from third parties and your competitor knows this, they may buy your business for a lower price than you anticipated. During the due diligence process and in spite of the competitor having signed an NDA, sensitive information will be disclosed to the competitor which may work against the company in the future if sold to another buyer.
- Selling the business to an unrelated new owner
The good old-fashioned business sale. With the right broker on your side, this exit strategy can be a successful one for many business owners looking to sell.
Pros: Working with Core Business Brokers, you’ll receive access to our extensive network of qualified buyers and professional connections, as well as almost 90 years of industry experience, knowledge and more (so you’re in safe hands!). Our aim is to entice many enquiries from qualified buyers. We’ll then reduce this to a handful of qualified buyers, all bidding for the business. This will provide competition and therefore result in the highest possible bid for the business.
Cons: Like all business sales, marketing fluctuations, competitors and customer demand will affect your sale price. It’s important to understand the business sale process and plan accordingly (chat with us to learn more).
If you’re needing to create an exit strategy, contact the team Core Business Brokers, Sydney. Contact us to book your initial, obligation-free appointment today here, or give us a call at (02) 9413 2977. Alternatively, email [email protected] or [email protected] to discuss your options.