For entrepreneurs and business owners, an exit strategy is essential. In normal times, whatever your reasons for wanting out (retirement, the desire to cash in while the going is good or a hunger to take on new ventures) it is always important to have a clear strategy in mind. It is nigh on impossible for any business owner to wake up one day, decide they want out and then expect to get good value for their stake. Leaving your own business in a satisfactory manner takes some forward planning.
In current times, this is actually even more important. This doesn’t mean the thinking will necessarily be the same as it would have been a number of months ago before covid-19 hit. It means that the exit options might, firstly, be more in business owners’ minds given recent events and, secondly, that the realistic options may be different.
- Strategic acquisition of your business (“trade sale”)
- Management buyout (“MBO”)
- Employee buyout (“EBO”)
- Sale to co-owners
- Flotation on a stock market
- Members Voluntary Liquidation (“MVL”)
What’s new is that for some, there may be a desire to consider either a Management buyout (“MBO”), Employee Buyout (“EBO”) or, perhaps less positively, a Members Voluntary Liquidation (“MVL”) if other options are not now available for the foreseeable time. Sadly, it is true that trade buyers will generally be looking for keenly priced deals and funders of deals will be choosier than before. This is made even worse by the fact that trade sales and flotations were not prevalent for SME sized businesses over recent years pre covid-19.
If you are considering exit in the reasonably short term than a flexible approach will be essential. Owners should be even more suspicious of anyone suggesting selling their business will be easy and done for a great price. It is not likely whatever they suggest.
The good news however, is that if the business is currently or realistically in the near future likely to generate cash above what is needed for remuneration of owner manager/directors for the work they actually do in the business, then there are options. These are more likely to be MBO or EBO type deals than before covid-19 but there are advantages to both the current owners (including tax planning) as well as management and employees in these options.