Business tips

Five exit strategies for small business owners

Retirement, new projects, a career break… There are many reasons to relinquish the reins on your business, but an effective exit strategy can ensure you don’t leave empty-handed.

When launching a business, many operators are too occupied with its success to worry about how it will end. It’s little surprise then that a 2008 report from the Commonwealth Bank Local Business Banking division found that less than half of Australian small business owners had an exit strategy in place. Of those with a strategy, almost a quarter planned simply to close their doors and walk away.

Fortunately, there are other routes to follow when it comes time to move on – many of which offer financial incentive. Here are five exit strategies to consider now, to help you capitalise on the value of your business down the track.

1. Walk away

There are pros and cons to the “shut-up-shop” approach to closing a business. It’s a relatively straightforward process: no negotiations with buyers, no transfer legalities to take care of… Just sell any assets, pay off your debts and divide the remaining money between shareholders. On the flipside, it seems a waste of the effort taken to build your business, not to mention your brand’s reputation and customer base. However, if day-to-day operations hinge on one person (you!) or if the business is no longer viable, walking away might be the way to go. The Australian Government’s website offers several tips to help you decide whether it’s right for you.

2. Sell to someone you know

There are many benefits to engineering a “friendly sale” with a family member, employee or even a customer. They know you, they know your business and, with a personal investment in the company, they will most likely do what it takes to make it a success. That said, it’s important to take a professional approach to any transfer of ownership, as a laissez-faire attitude could result in a low sale price or a soured relationship. Enlisting the services of an intermediary to draw up the sale contract, as well as a solicitor to review the fine print, will help promote a smooth transaction. Developing a clear succession plan is also vital to ensure everyone is on the same page in regards to the “who, how and when” of the transfer. Visit the site for succession planning tips and templates.

3. Sell to the highest bidder

Listing your business for public sale removes any of the emotional issues that can arise from the family or friend-funded acquisition; it could even generate a bidding war between perspective buyers! And they come in many forms: a similar business, for example, looking to acquire complementary skills or products, or perhaps to expand into a new market. Preparing your business for sale demands some careful planning. Weaknesses should be addressed, financial records updated, and systems and processes documented to improve your business’ appeal. Finding the right buyer, not to mention negotiating a sale, can be time-consuming and stressful, so it might be worth engaging a business broker for assistance. Contact the Australian Institute of Business Brokers for information.

4. Float your stock

While commonly used to raise capital, an Initial Public Offering (IPO) can also serve as an exit strategy. It requires a business owner to list shares in their company on the stock exchange, initially retaining a substantial portion before progressively selling out. However, it’s a rare choice for small businesses: an IPO is an expensive and complex process, plus it takes time to execute. Before you can sell out altogether, you’ll be answerable to shareholders and will lose some control over the business. Still, it works for some. Learn about the rules of listing on the Australian Stock Exchange (ASX) here.

5. Take a back seat

If you’re not ready to give up your business entirely, why not consider a partial exit? Nominate someone to run the show while you maintain ownership and a regular income. While you may need to step in from time to time, this option allows you to take a break from the business and plan your next move.

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