No matter how well your company is doing, it’s always worth having some business exit strategies in place. Whether it be a long-term strategy that ensures you can eventually extract the most value possible from your company, or a contingency plan in case things don’t go to script, a business exit strategy should be something you give thought to.
Of course, the business exit strategy you choose will be highly dependent on either the opportunities or dangers your company faces at the time. By having a rough idea of what route you would take in any given situation though, you can ensure that your business is agile enough to capitalise on changes in your industry.
What is exit strategy in business?
Put simply, a business exit strategy is a plan that allows the owner to either sell or exit the company in a way that ensures the best possible outcome for them. This could be a business sale for a profitable company, or a closure for one that’s struggling.
Should a business plan have an exit strategy?
While not essential for plans given to investors and financiers, it’s a great idea to include a business exit strategy in your business plan for yourself to refer to. This ensures that if you ever encounter any difficulties, you already have an option in place to follow to avoid worsening the situation. Equally, you may have an end goal of crystallising the company’s value and exiting with a large lump sum.
Having a business exit strategy in place can not only provide some security in turbulent trading landscapes, but can also provide a roadmap for those hoping to maximise the amount they can eventually sell their companies for.
What are the benefits of having business exit strategies?
Allows you to keep to plan
When business owners are knee-deep in the day-to-day running of their companies, attention inevitably wanders to smaller concerns such as staff absences, supply delays and other issues. Because of this, it can be difficult to remind yourself of the company’s long-term goals. By having a business exit strategy in place though, you can see exactly what you’re working towards.
Value provides another metric to work with
By having a current valuation of your business, you can track its progress in relation to the market. This can be a useful metric to keep an eye on if you are hoping to sell eventually. Equally, a declining valuation may suggest cause for concern within the business.
What are the three main exit strategies?
There are several business exit strategies that companies can use, but the three most commonly seen are closure, passing the company on to a relative, or selling it.
Closing the business
Not every business venture is successful, and it’s important that you know what to do if your company eventually loses its viability.
Familiarise yourself with the signs that your business may be struggling and be prepared to exit before issues have a chance to snowball. If sales are slowing, your cash flow reserves are difficult to manage, or clients are leaving, it may be worth looking into how a liquidation might help you to get out with the minimum of fuss.
Forbes Burton’s business insolvency expert, Ben Westoby adds that “there are a number of ways in which to close a company and clear debts. A company’s particular situation will determine which route to take, but in general, most will look at either a dissolution or a liquidation. Dissolution differs from liquidation in that the company typically doesn’t have the funds to pay for a liquidation, nor the assets to pay off their debts. Assuming any debts are small enough to be written off, this can often be the best course of action”.
Passing the business on to a successor
When business owners approach retirement, they often look within their own families to find their successors. This can make sense to those who like the idea of still being able to have some sort of connection and input after exiting.
Transferring a company over to a family member also allows you to effectively groom a suitable relative over the course of years to ensure that they’re ready to jump straight into your shoes when needed. Of course, business owners often either accept less than they could otherwise get, or receive no payment at all when they pass their business to a relative. This makes it a poor choice for those looking to maximise the value they’ve built up in the company.
Occasionally, businesses are passed on to family members who either lack the competence to make the company work, or lack the interest of being owner in the first place. Make sure that if you’re considering this as an exit option, that you check in periodically with the relative you plan to transfer the business over to. You need to know that they’re both enthusiastic and competent enough to keep the company running well.
Pros of passing your business on to a friend or family member
The sale should run smoother than most deals. Given that you have a pre-existing relationship with the buyer, communication between the two of you should be good too, with neither party looking to act ruthlessly to gain any sort of edge.
Cons of passing your business on to a friend or family member
You’re less likely to drive a hard bargain. Directors selling to someone close to them tend to receive less money than they could have achieved elsewhere.
Selling the business
One of the best things about owning a business is that it eventually becomes an asset itself, which you can sell to interested parties for the right price.
There are a few different options when it comes to whom you can sell to.
You may decide to sell to a private investor (private equity investment), a competitor, or another third-party that wants to take over the day-to-day running of your company (trade sale). In these types of sales you may be expected to stay in the business in some capacity to help the new owners settle in.
Options when selling
There are several options you can choose when selling. Each with its own particular set of benefits and drawbacks.
Partner buy out
If you only own a part-stake in the business, you may be able to sell your share to the other partners in the company.
A business partner with the funds and intent to buy is in many ways the perfect buyer, and you’ll struggle to find a more straightforward sale.
Pros of a partner buy out
A simple sale. Partners will be able to take over the business without skipping a beat, limiting the need for you to stay on to guide them.
Cons of a partner buy out
Aware of even the tiniest issues within the company, a partner may have more ammunition than most with which to try to barter with.
Management buy out
You may also be able to sell the business to the existing management team via a management buy out.
Pros of a management buy out
Similar to a partner buy out, you would expect managers to know the business well enough to hit the ground running.
Cons of a management buy out
By making the company available to just one party, you miss out on the potential of multiple competing bids upping the price.
Employee ownership trusts
Selling to an employee ownership trust can be another relatively simple selling option. Here, a trust is formed that owns a majority stake in the company and allows employees to share profits, but doesn’t give any one employee an actual share.
Pros of selling to an employee ownership trust
Selling to an employee ownership trust can save you a significant amount of money as the fee you receive will be exempt from Capital Gains Tax. On top of that, any staggered payments you receive see the first £3,600 also exempt from tax each year (correct as of April 2026).
Cons of selling to an employee ownership trust
Although some are paid for by a business loan, the majority tend to be paid to the outgoing owner out of the company’s profits. This means that future lean periods for the business could mean the same for yourself, while the risk of the company going insolvent while still owing you money could potentially see you miss out on being paid the full amount.
Earn out
This is a popular method for many to buy businesses with. Here, part of the fee is deferred, with the outstanding amount dependent on future performance. It’s often used as a device to get deals over the line when there is some difference between the seller’s valuation and the buyer’s bid.
Pros of an earn out
The benefits of an earn-out deal are generally weighted in favour of the buyer, however, this can make it easier to secure a deal.
Cons of an earn out
You’re banking on the buyers to make a success of it in order to receive your money. If you’ve left the company, you have no means of helping to achieve its goals. There can also be added complexities to the tax you’ll have to pay on deferred payments.
Gifting shares
Similarly to succession plans, directors have the option to gift their shares in the business to family or others without the need for money changing hands.
Pros to gifting shares
No unknown third parties to rely on for the deal to go through.
Cons to gifting shares
There are several tax implications and complexities to this practice. Capital Gains Tax and Inheritance Tax can come into play, and while there are some tax relief schemes to help with this, it’s highly recommended that a professional is enlisted to avoid you having to pay out a significant amount of tax.
Other business exit strategies
Outside of the three main business exit strategies, there are several others that you may choose to employ.
Going public
This is usually the preserve of business owners’ dreams, but should your company actually reach the heights that a public buyout becomes a legitimate option, going public can be a very lucrative route to take.
Not all stock flotations achieve success though. If, for whatever reason, your stock doesn’t attract investors as much as first hoped, you can find that your business is instantly devalued by the process.
Pros of going public
Floating on the stock exchange can bring in a substantial amount of money in a very short space of time.
Cons of going public
The initial public offering (IPO) process can be costly, with expensive underwriting fees being common. There are no guarantees that your shares will sell for the amount you’d like.
Merging with another business
In the event of a merger, you may decide that you’re content to take a back seat and allow the other company’s owners to take control. This is usually only an option after they’ve been given time to become acquainted with your company’s operations and how to effectively run it.
Pros of a business merger
You often have opportunity to stay on within the business after being paid, effectively taking care of the next step in your career. Companies looking to merge often offer premium prices for your business.
Cons of a business merger
Loss of legacy should your old company’s identity be swallowed up as part of the merger. Can be significant integration challenges should you decide to stay on.
Selling your shares back to the business
If you can’t find a third-party buyer, you may be able to simply sell your shares in the business back to the company. In this scenario, the company will generally absorb the shares by cancelling them and increasing the value of any active shares owned by others.
Pros of selling your shares back to the business
It’s a simple transaction and doesn’t require any third-party buyers.
Cons of selling your shares back to the business
Money made from the sale of shares are usually subject to income tax, which is charged at a higher rate than Capital Gains Tax, though this can be avoided in some cases. There are also several legal requirements that need to be met before a company buys its own shares.
Insolvency proceedings
If your business cannot pay its debts and doesn’t have any assets to sell off to cover them, you may find that winding up proceedings are brought against your company. Rather than an exit strategy in itself, this is usually forced upon the business by its creditors.
Consideration factors
When choosing an exit strategy, it’s important to consider a number of factors:
The value of your business
The value of your business will affect the amount of money you will receive from the sale.
Your personal goals
What are your goals for the exit? Do you want to maximise your profits, maintain control of the business, or help a family member or employee?
The tax implications
The way you sell your business can have a significant impact on your tax liability.
The timing of the exit
When do you want to exit the business?
It is also important to get professional advice from an accountant, lawyer, or financial advisor when choosing an exit strategy. They can help you understand the tax implications of your exit and make sure that you are protected legally.
The best exit strategy for you will depend on your individual circumstances and goals. If you are looking to maximise your profits, then selling your business may be the best option.
If you are looking to maintain control of the business, then passing it on to a successor may be the best option. If you are looking to exit the business quickly, then liquidation or dissolution may be the best option.
It is important to carefully consider all of your options before choosing an exit strategy. By doing so, you can ensure that you choose the best option for you and your business.
Looking to exit your business soon?
We provide several different solutions for owners looking to exit their businesses. Whether you’re looking for a buyer for your company, or just hoping to make it more attractive to investors, we can help.
Find out more about our Business Exit Planning Service →
