Planning your way out? How to exit your business

There are far more ways than you might think to exit a business.

When the time is right you might sell, you might get acquired, you might pass your business on to someone else or you might just wrap it up in a positive way. Read our guide on all the different ways to exit a business.

You can watch or listen to this article as a podcast instead.

For some, exiting a business might be a negative experience. It might have been forced upon you or you might want out because you’ve reached burnout. Or maybe the marketplace has changed and you just don’t have the energy to change with it. You may have even fallen out with your business partner (who may even be your romantic partner too!) and the business just isn’t viable with the current relationship.

But for others, exiting a business can be a really positive thing. Getting acquired by a larger competitor or selling the business for an amount of money that will set you up to go and do something new might be your final business goal. Or you might want to exit a business to give you a lifestyle change – after all, the life of a business owner often involves long hours and not being able to go ten minutes without checking your email. So exiting your current business to do something that gives you a better work-life balance might be the kind of decision that, once you’ve done it, you wish you’d done years earlier.

So we’re going to take a look at all the options available for exiting a business once you have made the decision – and sometimes it’s absolutely the right decision, it’s just time. Maybe you’ve built the business as far as you can take it with your skill set and it’s time to hand it over to someone else to take it to the next phase. Or maybe you’re coming up to retirement age and someone who’s younger and hungrier would give the company the boost of energy it needs.

But when we talk about exiting a business (that you own or that you founded) usually people think you have one of two options: you sell it or you just shut it down. When in reality, there’s lots of choices between those two extremes but what’s open to you will depend on a whole load of circumstances.

Selling your business

Selling your company is probably the best known way of ‘exiting’ a business. For example, another company acquires your business to wrap in to their own or someone buys the company from you so they can continue running it themselves.

Although this is probably what most people think of when talking about a ‘business exit’, your company may not be saleable in its current state. The issue with many small businesses is that the thing of value in the business is the owner themselves. The skill set and knowledge is all kept within the owner, the customers’ relationship is with the owner, and when the owner moves on the customers go elsewhere. Or often there’s nothing in the business that someone else couldn’t just set up themselves tomorrow instead of paying to take over what you’ve created.

If you want to sell your business, then you need to know what gives a business value. And in small businesses they are generally the following four things:

1. Your tangible assets
The value of your equipment or if your business owns any property or unsold-stock.

2. Your customer base & order book
Do you have hard-won, long-term, repeat-buying customers who are not likely to split the moment the owner leaves?

3. Your brand and reach
Is your brand a major player in your sector and a reason why people buy what you sell, or does your business have tens of thousands (or even hundreds of thousands) of engaged social media followers?

4. Your intellectual property or IP
Do you have a commercial patent that gives you a competitive advantage in your market, or do you own some unique technology that can’t just be copied by someone else and that’s the reason your business is successful.

If your business doesn’t offer any of these things, then there’s little value in someone paying to take over what you do rather than just setting it up themselves from scratch. The reality is that a business is only worth what someone will pay for it.

That’s why, the moment you decide you want to sell a company, you need to start working on creating what we call ‘intrinsic value’ within your business. You need to start working on building a business that will continue to make money for someone else after you leave it.

Getting your business to the point where it is saleable might take a long time, in fact it might take a couple of years. Talk to people who specialise in selling businesses and you will learn that they view each sale as a multi-year project. They know that the first part of the sale is getting the business to the point where it can prove it’s value to a buyer, which often means developing the business so that it can work without its current owner at the centre.

You will need to create certified profit and loss statements, you will need to produce an information memorandum and you’ll probably want a business advisor to help you do all that. You’ll need to plan how you are going to tell your staff, how you are going to tell your suppliers and how you are going to respond to the inevitable negative spin from your competitors, and all that takes time and planning.

If you are lucky enough to get acquired, or bought out by a larger competitor, then it’s not unusual for part of that sale to include you staying in the company for a period of time, maybe even a couple of years, to give continuity to the business. So you could celebrate this huge life-goal of selling your business, only to then be facing 12 to 24 soul-destroying months as an employee of the business you’ve just sold!

So if this is your goal, then you need to start drawing up a new business plan that focusses on developing the areas above to the point where your business has value beyond just you as the founder. If you don’t have tangible assets, a tied-in mature customer base, a market-leading brand or sole-ownership of some unique technology, then you should probably rule-out the idea of selling your business. That doesn’t mean you should just close-down your company though if you’re looking to exit. There are other options that might actually give you more money in the long-term than you would earn from a one-off sale.

Getting your business to the point where it is saleable might take a long time. Talk to people who specialise in selling businesses and they view each sale as a multi-year project.

Succession, phased hand-overs and management buyouts

Instead of asking for an up-front fee for your business, you might find someone to take over running it while you continue to take a reduced wage or a percent of the profits over a number of years as part of a phased hand-over. This way, there’s a deal of continuation where you as the original founder are still on hand to give advice and mentor the new owner, but at the same time you have freed up the majority of your time to go do something else whilst still retaining some form of income. You often see this when someone is looking to retire and want to hand over to a family member or someone who already works for them, but that person simply doesn’t have the money to make an up-front purchase.

And it might be that in this scenario you never fully exit, you may simply keep some shares in the business and continue drawing down dividends while others take over the company. Especially if it’s a successful business and the only reason you want out is because you’re bored and want to do something else. Why completely give up the income just because you want to move on?

In larger businesses, you might have the opportunity of a ‘management buyout’ which is where a group of employees come together to take ownership of the company, allowing the original owner to leave or step-back. This might be achieved by the company using the money it already has in the bank to buy the original owner’s shares, or the business taking out a loan to finance the buyout. There’s also an option to transfer ownership of a business wholly to it’s employees, creating a cooperative or an Employee Ownership Trust where all employees equally share ownership.

If you are thinking about exiting a mature business, then it’s worth looking at who’s already in the business that might be a natural successor. They will have the added benefit that they already know the company and how it works and may be emotionally involved – meaning that they see more value in the business than an outside buyer might, who’s just looking at the cold figures.

Liquidating what's got value

If you can’t (or don’t want to) sell your business or hand it over to someone else, then there are other options. Perhaps your company doesn’t have a lot of value as a business, but the individual things that make up your business do. For example, another company might not want to take over your business, but are very interested in buying your customer list, order book and ongoing contracts to service under their own brand.

There might be more that you can sell if you break down your business into parts, and we call this liquidation. Some of the things in your business that may have value and that you can sell individually:

Your unsold stock and unused materials.
Your social media following.
Your website if it has a lot of traffic.
Your website address if it’s a sort-after domain name.
Your equipment, vehicles and property if you own them outright.
Your debtors or order book.
Your intellectual property, systems, patents and copyrights.
Your individual knowledge of a marketplace if you are willing to work as a consultant to others.

There's no such thing as failure in business

Finally, you might go through all these options and find none of them apply to your business. You don’t have intrinsic or saleable value, there’s no-one to take the business over from you and your company doesn’t have any assets it can liquidate to create a final payday. The only option you see is to wind-down the business and stop doing what you’re doing.

And if you’ve made that decision, then embrace it. Because there is no such thing as failure in business.

Go listen to some of the podcasts we’ve recorded with successful vegan business people and they will tell you the story of all the businesses they tried to make work before they found success. They might have spent years learning and trying out different ideas that didn’t pan out, but only by going through that process could they learn the skills and knowledge to find success with the next thing they did.

So if you are closing down your business, don’t be afraid to celebrate what you’ve achieved and learnt over those years. You may have seen companies that have almost no interaction on their social media, but when they announce they are closing their doors they get hundreds of comments, almost exclusively positive.

Use that uptick in visibility to let people know what you’re doing next, or even to let people know you’re now open for work or looking for your next challenge.

A bullet point recap of what we’ve covered in this article:

When you come to exit a business, usually people think you have one of two options: you sell it or you just shut it down. When in reality, there’s lots of choices between those two extremes.
Many small businesses are not worth much without their founder. So if your goal is to sell your business then you need to start working to build ‘intrinsic value’. And that might be: tangible assets such as property and equipment; your order book and ongoing contracts with customers; your brand; or your IP or intellectual copyright.
Selling a business can take a long time, think years rather than months. There’s a lot of work to do to get a business to the point where it’s saleable and a lot of documentation to provide to potential buyers. And don’t forget that the deal might include you staying on for an extra 12 to 24 months after the sale.
There are other options to a sale. You can hand a business over to someone else but agree to still continue to take a wage or dividends instead of taking an up-front payment. Or you can look at a management-buyout or creating some kind of co-operative structure, where the company buys back your shares either with cash in the bank or by the management taking out a loan.
If your business isn’t valuable as a going concern, then it’s individual parts might still have value when you liquidate them. For example, your unsold stock, your customer base and debtor’s list, or even your web address and social media following all might have value to the right person or company.
If you do decide to close down the business then embrace it and use the extra spike in publicity to promote what you are doing next or to let people know that you are open for work.