When you launched and founded a successful business, you probably didn’t give much thought to how you would exit. The focus often is on starting and building the business and an exit is unlikely to have been planned for. More often than not, an exit is usually triggered by needs such as ill-health or the passing of key personnel.
Exits are often stressful and time-consuming. The key to leaving when and how you want to is to start planning your exit early; even at the time of writing a business plan.
There are various ways you may exit a business:
Selling
This is the most common way in which business owners choose to exit. Depending on the structure, you may choose to sell your business or to sell your ownership stake (i.e. your shareholding). A sale is time-consuming and takes time to prepare to ensure that you fetch the optimum price. As such, it is important to start preparing your business for sale early. Do you know what your business profit drivers are? Are your financial statements and reports all in order? Do you know what your business is worth? Would you consider staying on as a consultant for a period of time after the sale? There are many other variables to also consider when planning for a sale so it is best to start building on this early.
Merger
Whilst less common, entrepreneurs can also consider merging their business with a competitor or another complimentary business. In a business merger, more often than not, the transition or exit may be longer as most entrepreneurs would stay on for a period of time after a merger to ensure successful transitioning. In a merger, there is more than just business performance that you need to consider. Matters such as workplace culture and employee morale are also important to ensure that the two merged business can continue to perform at its optimal level. If you are wanting to exit in entirety, this may not be the best strategy for you as there is a longer lead time.
Share Buy-back
A share buy-back takes place when the company issuing the shares repurchases the shares. A share buy-back can be either identical or selective. In a selective buy-back, there is a difference in either the price or percentage of shares bought back for some shareholders. A share buy-back results in the transfer of shares from the shareholder back to the company. In some ways, it is similar to a shareholder selling off shares with the difference that, the shares are cancelled and all rights cancelled after the shares are bought back. Another difference is that a share buy-back has a different taxation implication to the shareholder as compared to a sale of shares as a buy-back is often accompanied by a fully franked dividend. A share buy-back can only be carried out under strict compliance with the Corporations Act and if it does not prejudice the ability to pay back creditors. If you are carrying on a business with family members or unrelated parties; this could be another exit strategy you could consider as other family members may want to consolidate ownership.
Exiting a business is inevitable for most entrepreneurs and it should be a proactive decision rather than a reactive decision due to unexpected emergencies or economic downturn. Regardless of what method you wish to adopt in exiting your business, it takes planning and time to prepare for. It is never too early to start building an exit strategy.
If you’re considering an exit strategy or unsure where to start, contact the experts at your local Accru office today.