Time for a Sharp Exit: Options To Get Out Of Your Business!

So… the business has been going for a couple of years and it’s all been going quite nicely… you’re making tidy profits… you’re taking home a decent whack… but where to next?

The dilemma that many comfortable businesses seem to avoid is that of the exit.  What on earth are you going to do next?  The business is pretty good but how will you extract the maximum money from your hard-earned enterprise.

Several options appear in a rough order of ease:

1. Bleed the business dry
2. Liquidate
3. Friendly sale
4. Trade sale
5. Management buy-out/buy-in
6. Business angels
7. Venture capital
8. Go to market/IPO
9. Organic growth or ‘buy and build’… then any of the options above.

The first few options are pretty straightforward.

OPTION 1:
BLEED THE BUSINESS DRY

Pretty straightforward this one – you just take as much as you can out of the business in the form of pay, dividends, and perks irrespective of the performance of the business – not the sensible option and often the option people follow unconsciously… but you can get back a lot of your investment by this method.

OPTION 2:
LIQUIDATE

This option may come at the end of Option 1… - quite simply, you just close the doors, shut up shop and wait for the liquidator or insolvency practitioner or bankruptcy courts to catch up with you.  You leave them to sort out the outstanding debt and sort out the remaining creditors and if there’s anything left (after professional fees) then the shareholders get some money.  Not the cleverest option and one that, again, some people do without any clear  conscious decision to do so.

OPTION 3:
FRIENDLY SALE

The idea behind the ‘friendly sale’ is that this takes place with everyone being happy.  Someone nearby, employees (MBO) or friends or family don’t want to see the business disappear and take it over rather than see it sold.  This is a great option but not predictable; often these sales do not see the highest valuation for the business because it is not a purely mercenary purchase but on the other hand, the business gets passed on to a friendly face!

OPTION 4:
TRADE SALE

Selling the business to the open market requires there being one buyer out there who wants to buy a business like yours.  Usually they will be buying in order to get into a new market or access to customers but it may be to acquire you technology, your goodwill or your market share.

Trade sales tend to get you a better price when it is not known that you wish to sell but each deal is different!  Ideally you would set your business up to look attractive to the purchaser so you should think carefully and a long time in advance about what a buyer might wish to buy (a management team or ideal client list) and create a business to reflect that.

OPTION 5:
MANAGEMENT BUY-OUT/BUY-IN

Your management or another management might wish to buy your business.  MBOs are attractive to the existing management because they know the business already, warts and all. A similar set of guidelines applies to selling the business to MBOs, MBIs and the other sensible options below (whether selling the business or looking for funding).

OPTION 6:
BUSINESS ANGELS – A FUNDING OPTION

Business angels bring funding (￡50,000-￡1m?) and their own experience to your business to help you grow it. The stereotypical Business Angel has been there and done it and has some capital to play with.  They usually wish to join the board and can give you the experience and the money that you need to take the business to the next stage of growth.

OPTION 7:
VENTURE CAPITAL – ANOTHER FUNDING OPTION

Venture Capital, sometimes referred to as ‘Vulture Capital’, is not for the faint-hearted.  Deals normally start at about ￡1m and the VC looks to see higher than average returns on their investment, say 30+% pa.  VCs are professional business growers and only invest in businesses that can generate the returns that they seek.

OPTION 8:
GO TO MARKET/IPO

Going to market is sometimes referred to as IPO (the Initial Public Offering, in effect a prospectus offering shares in a business for sale). In essence there are three markets to consider, in order of ascendancy: Ofex, AIM/NASDAQ and the full Stock Market quotation.  In very general terms, Ofex is a smaller, independent market for funding up to ￡5m, AIM looks at ￡1m+ and the stock market is for ￡10m+. 

The cost of each option increases with professional fees associated with each option. Look out for these costs – there is an entire industry out there that makes its money out of the business of buying, selling and funding businesses.  Due diligence is the least of your potential costs (lawyers, accountants, promotion, PR and so forth) with total fees often in excess of 5% of the amount sought – and don’t forget that each exercise might take a minimum of six months of director(s’) time.

OPTION 9:
ORGANIC GROWTH OR ‘BUY AND BUILD’.. THEN ANY OF THE OPTIONS ABOVE

Rather than get money to grow, you can try to grow organically.  The problem here is that business growth means that you are haemorrhaging cash and you need something to supply the cash.  ‘Buy And Build’ is an excellent fast-track route to growth but needs even more cash to fund it. 

Whichever of the sensible options above you wish to take (ie not options one or two) requires a special business – otherwise it will hold no attraction to a potential buyer or funder.

Whatever your direction, it seems sensible to run a business that adheres to some core principles. Click here to read more.