Exiting a Small or Medium-sized Enterprise (SME) can be a significant turning point for business owners. Deciding to step away requires careful planning and consideration of various exit strategies. Each option has its advantages and challenges, and the best choice depends on the business owner's objectives, the company's financial health, and market conditions. Here, we explore the various exit strategies available to UK SME owners.

Selling the business

There are three options when it comes to selling a business, they are:

  • Trade Sale: Selling to another company, often a competitor or a business in a similar sector, is known as a trade sale. This is one of the most straightforward exit strategies. The key advantage is that it often yields a high sale price, especially if the business is profitable and has a strong market position. However, finding the right buyer who is willing to pay the desired price can take time and effort.
  • Management Buyout (MBO): An MBO involves selling the business to its existing management team. This is a popular option as it offers a smoother transition with less disruption to the business. The management team's familiarity with the business can also facilitate easier negotiations. However, funding the buyout can be challenging for the management team, often requiring external financing.
  • Employee Buyout: Similar to an MBO, this strategy involves selling the business to its employees. This can boost morale and ensure business continuity, but like an MBO, financing the purchase can be a hurdle for employees.

Passing it on

Another way to exit a business is by passing it on; this can be done in one of two ways:

  • Family Succession: Handing over the business to a family member is a common practice. This ensures the business stays within the family and can be particularly satisfying for owners who want to preserve their legacy. However, not all family members may be willing or capable of running the business effectively.
  • External Successor: Finding someone outside the family, often a trusted employee or an industry expert, to take over the reins can be an effective strategy. This requires careful vetting and a well-planned transition.

Public offering

Initial Public Offering (IPO): Going public by listing the company on a stock exchange can be a lucrative exit strategy. It often provides a significant cash influx and a chance for the owner to retain some level of control or involvement. However, an IPO is complex, costly, and time-consuming, with stringent regulatory requirements.

Liquidation

If the business is not viable or there is no interest from buyers, liquidation might be the only option. This involves selling all company assets and settling debts. While it often results in a lower return, it can be a straightforward way to exit a failing business.

Partial exit strategies

  • Private Equity: Selling a part of the business to a private equity firm can be a way to reduce the owner's involvement while benefiting from the firm's expertise in driving growth. This can be a stepping stone to a complete exit in the future.
  • Venture Capital: Similar to private equity, this involves selling a stake to investors. It's more common in high-growth sectors where there is potential for significant future valuation.

Franchising

For businesses with a replicable business model, franchising can be a way to step back from day-to-day operations while still retaining ownership and earning royalties. This requires developing a comprehensive franchising plan and finding suitable franchisees.

Conclusion

Choosing the right exit strategy for an SME in the UK requires balancing personal goals, financial objectives, and the business's market positioning. It's crucial for business owners to seek advice from financial advisors, legal experts, and industry specialists to understand the implications of each option and prepare accordingly. Ultimately, a well-planned and executed exit can secure the owner's financial future and ensure the business's legacy continues. 

How can DWilkinson&Company help?

We have extensive knowledge of helping clients to prepare their businesses for sale and to work closely with them during the sale process. For many business owners, selling a business is more than just 'cashing in'; we understand the personal and emotional aspects surrounding such transactions. We can help the process run as smoothly as possible while providing detailed tax advice to help the business owners maximise the outcome of a sale and to help protect their future wealth.

Please contact Daniel Wilkinson to arrange a free business consultation to find out more. His contact details are 0113 320 0001 or daniel@dwco.co.uk.