Guide

Consider your exit strategy when starting up a business

Business exit strategy: selling your business

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.

Buyouts

You could also sell your business to managers or employees - known as a management buyout. 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 an employee buyout.