Guide

Consider your exit strategy when starting up a business

Exit strategy: key considerations when starting a business

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.