If you're setting up a new business you'll have a clear vision of what you want to achieve from it. To maximise the value you get from the business it's essential to think about how you'll leave it further down the line.

Benefits of an exit strategy

Carefully planning your exit from the business can help you to:

• mould your business into the ideal shape for your chosen exit option, therefore maximising the value you get from it 
• groom successors if they're coming from within the business - whether they're a family member or part of your management team
• exit at a time of your choosing, when the business is doing well and the market conditions are advantageous

Ideally, you should include an exit strategy in your start-up business plan. It can then be reviewed and revised whenever you work on your annual business plan and budget - and you can steer your business in the direction that your exit option demands. See write a business plan: step-by-step.

If you manage an existing business and don't have an exit plan, you should think now about what your preferred exit option might be - and consider whether you could change the way you run your business to help you achieve it.

What is affected by a business exit?

The way in which you exit can affect:

• the value you and other shareholders realise from the business
• whether you receive a cash deal, deferred or staged payments
• the future success of the business and its products or services
• whether you retain any involvement in or control of your business
• your tax liabilities

It is easy to forget that the decisions you make today will not only affect how successfully your business gets off the ground, but can also seriously impact on your eventual exit from the business.

Key considerations

• Business form - the legal structure you choose can restrict your exit options and affect how potential buyers view the business. For example, a sole trader can simply close the business and pay off any outstanding liabilities but a limited company with a separate legal identity might be more attractive to potential buyers. See legal structures for businesses - an overview.
• Articles of association - these set out the rules for running the company affairs. If the articles of association are too restrictive they could limit what the business can and can't do. This could put off potential buyers or investors who are looking to diversify.
• Partnership agreements - these may specify what will happen if one of the partners wants to exit the business, eg due to ill health, disagreement or retirement.
• Property agreements - these can be notoriously difficult to get out of, if you need to, without suitable break clauses or the right to assign your agreement to another party.
• Shareholders - the involvement of company shares and shareholders with voting or preferential rights can make it more complicated for an outside investor or buyer to take over the business.
• Capital and ownership structure - straightforward structures can help make your business more attractive and can minimise potential barriers to sale.
• Accounting procedures - good financial and management accounts will give potential buyers and investors more confidence in your business and make completing the sales process easier.
• Employee/customer/supplier contracts - clear, simple contracts for all business relationships can help avoid disputes, clarify responsibilities and make it easy for potential buyers to see what they would be taking on.

Seek expert financial and legal advice

Before committing to any important decision, it is vital to seek advice from a suitably qualified expert such as an accountant or solicitor.

Passing or selling the business you have set up to a son, daughter or other family member can be an attractive option. It allows you to maintain an involvement in the business and pass the assets to your heirs.

If you plan on handing the business on to your children then it can help to involve them in the business as soon as possible, allowing them to gain an in-depth understanding of how things work.

Allowing them to gain experience working in other businesses can be equally important, as this will give them new strategic insight into your activities.

However, you should bear in mind that you can't be certain that a child or other family member will definitely be interested in taking the business on in eg 20 years' time. If you're starting a business with the clear aim of passing it on to family, you should seriously consider how you could interest the relevant family members right from the start to reduce the possibility of them pursuing other options.

Family Business UK has guidance on planning family succession that can help you prepare your exit strategy.

Get advice on family succession

A third party such as a non-executive director or business adviser can help you ensure emotions don't cloud your thinking. An accountant or solicitor can also provide valuable impartial financial and legal advice on family succession. 

They can help you to answer key questions:

• Will family succession set up the potential for conflict within the business or family?
• Will it provide you with a financially secure future? Or, should you be considering other exit options to maximise your future income?
• Will it be tax-efficient?
• How will family succession affect the chosen successor's tax liabilities?
• How should you apportion shareholdings between the successor and other family members?

For further information, see transferring a business to a family member and family-run businesses.

The most common exit option is selling your business - either to another business, a private investor or your employees or management.

Trade sales

A trade sale occurs when you sell the business (or parts of the business) to another outside party operating in, or allied to, your field. It can be the best way to get a good price - but you'll need to develop a business that's attractive to potential buyers.

If your business is not already limited, it may be difficult to achieve a trade sale as the value of the business is likely to be heavily tied to your skills or business relationships. You might also miss out on important tax benefits. The business may also appear less well established and therefore less attractive to potential buyers.

If you did not start out as a limited company, it is worth considering incorporation to give the business its own legal identity. See starting a company or partnership.

This may also make a merger possible - although this would probably mean remaining with the business for longer than if you make a straightforward trade sale. Read more on mergers.

Your chances of a successful trade sale can be improved by drawing up and following a clear exit strategy and minimising the potential hurdles to a successful exit.

Selling your business will also be easier if you can:

• show year-on-year increasing profitability
• show that the business can operate without you
• create a high-quality product or service
• develop an innovative product or piece of intellectual property
• build a strong customer base
• recruit a high-quality management team and employees
• maintain premises and assets in good condition

Read more on preparing to sell your business.

Employee ownership

You could also sell your business to managers or employees - known as a management buyout or employee ownership. Buyouts usually occur when employees or managers hear the business is up for sale and would like to buy ownership or extend an existing stake.

This option may not be as profitable as selling to a trade buyer as your managers or employees might not be able to raise the necessary funds to buy the business, or they may pay less as they fully understand the business - both good and bad - from the inside. Consideration should also be given to what might happen if your managers or employees fail to buy the business, ie how you deal with disgruntled or demotivated employees.

Read more on how to achieve employee ownership for your business.

Floating your business - selling shares on the stock market - can be highly rewarding financially. It lets you realise your investment in the business by making it easier to sell part of or your entire stake in the business.

However, any financial exit from the business is likely to be partial. Potential investors will be wary if you sell all your shares - and you may not be permitted to do so.

Any float will also affect other existing shareholders or investors. The shareholders agreement may give existing shareholders pre-exemption or voting rights which may make a float more difficult or reduce the amount you can realise.

Relatively few businesses can realistically expect to float as they are unlikely to be able to finance the necessary growth to attract investors.

See floating on the stock market and company shares and shareholders.

Venture capital investment

An alternative to stock market flotation is to attract venture capital investment. Venture capital businesses or private investors provide medium to long-term finance to your business in exchange for a share in the company. Venture capital funding can be used to grow or develop the business but may also be a way to facilitate an exit from your business by way of a management buy-out or buy-in or via a stock market flotation.

It is important to check exactly what return a venture capital firm is expecting, and how they plan to realise their investment and eventually exit the business.

Once you have secured funding you'll need to build a record over a number of years of delivering strong earnings and profits - and develop a business plan showing how you'll achieve further rapid growth.

Business suitability

Steps to take to be a suitable business for a flotation or venture capital investment include:

• building a strong management team
• have a robust business plan outlining how growth and profits will be achieved
• setting up a limited company
• developing operational, financial and management systems robust enough to handle both rapid growth and the additional legal requirements of a listed business
• appointing high-quality financial advisers

Closing your business isn't necessarily an option that's forced upon you by poor trading conditions or financial difficulties. It may suit both you and your business to close it when you decide to exit.

There are a number of circumstances where planning the closure of your business will be the most practical option. For example:

• your business may be too dependent on your particular skills to make a sale realistic
• family members may be uninterested in taking charge
• unfavourable economic climate
• ill health may force you to retire before you have had a chance to develop the business sufficiently to make an alternative exit viable

It's important to seek professional advice about your options in such circumstances from your solicitor, accountant or financial adviser.

The way you close your business will depend on the legal structure you have chosen for it. See legal structures for businesses - an overview.

Sole traders may simply be able to close the business and pay off any outstanding liabilities, especially if there are no employees involved. VAT registration, employees, PAYE (Pay As You Earn), tax and National Insurance obligations, premises and finance agreements can all make this process more complicated for anything other than the most simple business. See selling or closing your business.

The exit process you will have to go through will depend on how you are exiting the business.

Selling the business

If you are selling the business there are several stages you will go through:

• grooming your business for sale
• valuing your business
• identifying and marketing your business to potential buyers
• negotiating with potential buyers
• completing legal due diligence
• finalising the sale and transferring ownership

Prior to the sale, you should get the business into shape by reducing unnecessary overheads, debts and excess stock and getting your finances into good order. You will also require detailed financial information, including audited accounts and forecasts which you can prepare in advance. See preparing to sell your business.

You should seek specialist advice from your accountant, solicitor or corporate finance adviser. They will help you reach a realistic valuation, and identify and market your business to potential buyers. See value and market your business for sale.

Flotation

Businesses planning a flotation will go through a similar process and will require a detailed business plan, prospectus and accounts which comply with specific accounting standards. See further information on floating on the stock market.

Closing the business

If you are simply closing the business, the process should be much simpler. You should contact the relevant authorities to advise them you are closing down and calculate and pay off any outstanding liabilities (such as VAT) and debts. See selling or closing a business.

If you have employed any workers you will also need to give them the proper notice and any outstanding pay and benefits. For further information on making employees redundant, see issue the correct periods of notice and redundancy: the options.

If you're setting up a new business you'll have a clear vision of what you want to achieve from it. To maximise the value you get from the business it's essential to think about how you'll leave it further down the line.

Benefits of an exit strategy

Carefully planning your exit from the business can help you to:

• mould your business into the ideal shape for your chosen exit option, therefore maximising the value you get from it 
• groom successors if they're coming from within the business - whether they're a family member or part of your management team
• exit at a time of your choosing, when the business is doing well and the market conditions are advantageous

Ideally, you should include an exit strategy in your start-up business plan. It can then be reviewed and revised whenever you work on your annual business plan and budget - and you can steer your business in the direction that your exit option demands. See write a business plan: step-by-step.

If you manage an existing business and don't have an exit plan, you should think now about what your preferred exit option might be - and consider whether you could change the way you run your business to help you achieve it.

What is affected by a business exit?

The way in which you exit can affect:

• the value you and other shareholders realise from the business
• whether you receive a cash deal, deferred or staged payments
• the future success of the business and its products or services
• whether you retain any involvement in or control of your business
• your tax liabilities

It is easy to forget that the decisions you make today will not only affect how successfully your business gets off the ground, but can also seriously impact on your eventual exit from the business.

Key considerations

• Business form - the legal structure you choose can restrict your exit options and affect how potential buyers view the business. For example, a sole trader can simply close the business and pay off any outstanding liabilities but a limited company with a separate legal identity might be more attractive to potential buyers. See legal structures for businesses - an overview.
• Articles of association - these set out the rules for running the company affairs. If the articles of association are too restrictive they could limit what the business can and can't do. This could put off potential buyers or investors who are looking to diversify.
• Partnership agreements - these may specify what will happen if one of the partners wants to exit the business, eg due to ill health, disagreement or retirement.
• Property agreements - these can be notoriously difficult to get out of, if you need to, without suitable break clauses or the right to assign your agreement to another party.
• Shareholders - the involvement of company shares and shareholders with voting or preferential rights can make it more complicated for an outside investor or buyer to take over the business.
• Capital and ownership structure - straightforward structures can help make your business more attractive and can minimise potential barriers to sale.
• Accounting procedures - good financial and management accounts will give potential buyers and investors more confidence in your business and make completing the sales process easier.
• Employee/customer/supplier contracts - clear, simple contracts for all business relationships can help avoid disputes, clarify responsibilities and make it easy for potential buyers to see what they would be taking on.

Seek expert financial and legal advice

Before committing to any important decision, it is vital to seek advice from a suitably qualified expert such as an accountant or solicitor.

Passing or selling the business you have set up to a son, daughter or other family member can be an attractive option. It allows you to maintain an involvement in the business and pass the assets to your heirs.

If you plan on handing the business on to your children then it can help to involve them in the business as soon as possible, allowing them to gain an in-depth understanding of how things work.

Allowing them to gain experience working in other businesses can be equally important, as this will give them new strategic insight into your activities.

However, you should bear in mind that you can't be certain that a child or other family member will definitely be interested in taking the business on in eg 20 years' time. If you're starting a business with the clear aim of passing it on to family, you should seriously consider how you could interest the relevant family members right from the start to reduce the possibility of them pursuing other options.

Family Business UK has guidance on planning family succession that can help you prepare your exit strategy.

Get advice on family succession

A third party such as a non-executive director or business adviser can help you ensure emotions don't cloud your thinking. An accountant or solicitor can also provide valuable impartial financial and legal advice on family succession. 

They can help you to answer key questions:

• Will family succession set up the potential for conflict within the business or family?
• Will it provide you with a financially secure future? Or, should you be considering other exit options to maximise your future income?
• Will it be tax-efficient?
• How will family succession affect the chosen successor's tax liabilities?
• How should you apportion shareholdings between the successor and other family members?

For further information, see transferring a business to a family member and family-run businesses.

The most common exit option is selling your business - either to another business, a private investor or your employees or management.

Trade sales

A trade sale occurs when you sell the business (or parts of the business) to another outside party operating in, or allied to, your field. It can be the best way to get a good price - but you'll need to develop a business that's attractive to potential buyers.

If your business is not already limited, it may be difficult to achieve a trade sale as the value of the business is likely to be heavily tied to your skills or business relationships. You might also miss out on important tax benefits. The business may also appear less well established and therefore less attractive to potential buyers.

If you did not start out as a limited company, it is worth considering incorporation to give the business its own legal identity. See starting a company or partnership.

This may also make a merger possible - although this would probably mean remaining with the business for longer than if you make a straightforward trade sale. Read more on mergers.

Your chances of a successful trade sale can be improved by drawing up and following a clear exit strategy and minimising the potential hurdles to a successful exit.

Selling your business will also be easier if you can:

• show year-on-year increasing profitability
• show that the business can operate without you
• create a high-quality product or service
• develop an innovative product or piece of intellectual property
• build a strong customer base
• recruit a high-quality management team and employees
• maintain premises and assets in good condition

Read more on preparing to sell your business.

Employee ownership

You could also sell your business to managers or employees - known as a management buyout or employee ownership. Buyouts usually occur when employees or managers hear the business is up for sale and would like to buy ownership or extend an existing stake.

This option may not be as profitable as selling to a trade buyer as your managers or employees might not be able to raise the necessary funds to buy the business, or they may pay less as they fully understand the business - both good and bad - from the inside. Consideration should also be given to what might happen if your managers or employees fail to buy the business, ie how you deal with disgruntled or demotivated employees.

Read more on how to achieve employee ownership for your business.

Floating your business - selling shares on the stock market - can be highly rewarding financially. It lets you realise your investment in the business by making it easier to sell part of or your entire stake in the business.

However, any financial exit from the business is likely to be partial. Potential investors will be wary if you sell all your shares - and you may not be permitted to do so.

Any float will also affect other existing shareholders or investors. The shareholders agreement may give existing shareholders pre-exemption or voting rights which may make a float more difficult or reduce the amount you can realise.

Relatively few businesses can realistically expect to float as they are unlikely to be able to finance the necessary growth to attract investors.

See floating on the stock market and company shares and shareholders.

Venture capital investment

An alternative to stock market flotation is to attract venture capital investment. Venture capital businesses or private investors provide medium to long-term finance to your business in exchange for a share in the company. Venture capital funding can be used to grow or develop the business but may also be a way to facilitate an exit from your business by way of a management buy-out or buy-in or via a stock market flotation.

It is important to check exactly what return a venture capital firm is expecting, and how they plan to realise their investment and eventually exit the business.

Once you have secured funding you'll need to build a record over a number of years of delivering strong earnings and profits - and develop a business plan showing how you'll achieve further rapid growth.

Business suitability

Steps to take to be a suitable business for a flotation or venture capital investment include:

• building a strong management team
• have a robust business plan outlining how growth and profits will be achieved
• setting up a limited company
• developing operational, financial and management systems robust enough to handle both rapid growth and the additional legal requirements of a listed business
• appointing high-quality financial advisers

Closing your business isn't necessarily an option that's forced upon you by poor trading conditions or financial difficulties. It may suit both you and your business to close it when you decide to exit.

There are a number of circumstances where planning the closure of your business will be the most practical option. For example:

• your business may be too dependent on your particular skills to make a sale realistic
• family members may be uninterested in taking charge
• unfavourable economic climate
• ill health may force you to retire before you have had a chance to develop the business sufficiently to make an alternative exit viable

It's important to seek professional advice about your options in such circumstances from your solicitor, accountant or financial adviser.

The way you close your business will depend on the legal structure you have chosen for it. See legal structures for businesses - an overview.

Sole traders may simply be able to close the business and pay off any outstanding liabilities, especially if there are no employees involved. VAT registration, employees, PAYE (Pay As You Earn), tax and National Insurance obligations, premises and finance agreements can all make this process more complicated for anything other than the most simple business. See selling or closing your business.

The exit process you will have to go through will depend on how you are exiting the business.

Selling the business

If you are selling the business there are several stages you will go through:

• grooming your business for sale
• valuing your business
• identifying and marketing your business to potential buyers
• negotiating with potential buyers
• completing legal due diligence
• finalising the sale and transferring ownership

Prior to the sale, you should get the business into shape by reducing unnecessary overheads, debts and excess stock and getting your finances into good order. You will also require detailed financial information, including audited accounts and forecasts which you can prepare in advance. See preparing to sell your business.

You should seek specialist advice from your accountant, solicitor or corporate finance adviser. They will help you reach a realistic valuation, and identify and market your business to potential buyers. See value and market your business for sale.

Flotation

Businesses planning a flotation will go through a similar process and will require a detailed business plan, prospectus and accounts which comply with specific accounting standards. See further information on floating on the stock market.

Closing the business

If you are simply closing the business, the process should be much simpler. You should contact the relevant authorities to advise them you are closing down and calculate and pay off any outstanding liabilities (such as VAT) and debts. See selling or closing a business.

If you have employed any workers you will also need to give them the proper notice and any outstanding pay and benefits. For further information on making employees redundant, see issue the correct periods of notice and redundancy: the options.