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Choosing the Right Exit Strategy

Relevant For:

Business owners considering exit strategies.

Key Points:

  • Determine the best exit strategy, considering timing and financial goals.
  • Business structure impacts whether the business or equity is sold, affecting taxes.
  • Staged sales, common in family businesses, allow gradual exit and steady income.
  • Finding the right successor is critical; an outright sale may be better than family succession.
  • Outright sales can offer tax efficiencies and attract premium offers from synergistic buyers.
  • Always keep the business sale-ready to maximise value and seize unexpected opportunities.

Full Article:

Succession planning, particularly exit strategies, is vital for any business. Some banks now mandate a formal succession plan as part of business documentation.

Begin by determining the best exit strategy for the owners, including timing and financial expectations.

Consider the business structure, as it may influence whether the business, equity (shares), or both are sold. This can significantly affect the owner’s tax position.

Staged Sale

A staged sale is often the preferred option for family businesses. This gradual, equity-based exit strategy allows those already involved to purchase small parcels of the business over time. Funding is crucial for this option.

This strategy is attractive for exiting owners as they own smaller shares of a growing business, ensuring steady income. It also allows for a gradual transition out of the business.

Finding the right successor is key. In family succession, emotional ties may favour a family member, but an outright sale to a third party might be better for the family overall.

Outright Sale

An outright sale of the business or equity to a third party can offer tax efficiencies.

Identifying a potential acquirer who would benefit from synergies, such as a competitor, may result in a premium offer.

While preparing for an outright sale requires significant effort, the financial benefits can outweigh those of a staged sale.

Regardless of the chosen strategy, maintain the business in a sale-ready state. This ensures maximum profitability and readiness to seize unexpected opportunities.