Listed in: Selling & succession

Six exit strategies when you’re ready to let go

If you’re thinking of exiting your business in the near future but aren’t sure how, here are six exit strategies you could consider.

3 minute read

Moving on from your business is something that should be planned well in advance. This gives you time and space to make sure everything runs smoothly. A clean exit is usually best, where you walk away with a payout and are safe in the knowledge that your business is in good hands.

To help this process, it’s useful to be in a position to choose the right exit method that suits your circumstances, rather than rushing a decision which may not deliver the results you’re after.

Here are six typical exit strategies you could match against your circumstances and future opportunities:

1. Pass to a family member

Often family-owned businesses have someone from the next generation preparing to take over.  This can be an obvious choice if that person is already working in the business, has learnt your role, understands how the business works, is familiar with staff, and can continue to grow the business.

However, family businesses can be complicated if there’s more than one sibling or relative wanting to be in control and they have radically different ideas compared to your own.

To make it easier to sell to family, you could:

• communicate your intentions early
• decide who’s best qualified to lead
• get a consensus of agreement who will inherit
• get an outside expert valuation
• solve conflicts of interest
• use a professional (accountant, adviser) to help facilitate.

Ultimately you need to think what’s best for the business and if a family member has the right skills, experience, and business know-how.

2. Sell to a business partner

If there’s more than one owner of the business, they may be interested in buying it. Similar to selling to family (in fact they may feel a lot like family), take care if there’s more than one shareholder wanting control, and get an external valuation to avoid any disagreements on price.

You could also consider allowing the new owner to buy the business in stages – if they can’t afford to pay in one lump sum. Keep in mind that the business may not perform as well once you’re gone. This means they might fail to pay you, which is a hassle you’ll want to avoid.

3. Sell to your employees

An existing employee (or employees) may be interested in buying the business. Often employees make good buyers because they already know and understand the business, hold relationships with your suppliers and customers, and are likely to want to continue your way of working.

If an employee doesn’t have enough capital to swing the deal on their own, you might be involved in helping them fund the purchase. But like selling to a business partner, it’s usually better to ask them to find their own capital so you can make a clean break.

4. Sell to an outside buyer

Finding an external person or company to buy your business outright means you might be able to negotiate a higher price and leave the business without having any personal ties to the new owner.

To make this easier, you could:

• get professional help valuing your business so it’s a fair price (for both parties)
• use an intermediary (like a business broker or adviser) to help negotiate with the buyer
• look at what similar businesses are selling for
• prepare your business for sale by tidying, fixing, and updating
• set out your business plan for the future.

5. Shut down the business

Some businesses close down because it’s difficult to transfer any value and find a buyer. A good example is if the owner is the only employee (in a service industry like an architect) where ‘they’ are the business and it’s hard to justify goodwill.

Alternatively, the business could be under stress and may need to close to prevent reckless trading (expenses outweigh sales and there is no remedy in sight). If this is the case, you should liquidate your assets for cash and pay off any debts, tax, or financial obligations before winding down the business. You should get professional advice and help in these situations.

6. Keep the business and install a manager

You may decide to keep the business and employ a manager to run the day-to-day operations (who may be an existing employee or someone new). This is a popular option if the business is generating positive cash flow, plus you can draw dividends that might provide a better return than investing the sale proceeds.

Recognising the right time to sell

When to sell can depend on what’s happening in your industry (demand up or down) and of course your own internal retirement clock. Indicators of when to sell might include:

• you’re confident on the return-on-investment for another buyer
• the business has gone as far as you can take it
• the next generation is ready to take over
• you’re ready for another challenge
• there is potential for growth.

Selling your business is probably the most important decision you’ve made since you started up, so take the time to think about what’s best for you and the business. The more time you have before the sale date, the better the outcome is likely to be. Seek as much advice as you can from your accountant, business adviser, lawyer, banker, the industry, and other small businesses you trust to help guide you when to sell, how much for and to who.

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This article is solely for information purposes and is not intended to be financial advice.  If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.

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