In the life cycle of any business, there comes a time when an owner must consider a business exit. Whether motivated by the pursuit of new ventures, retirement, or simply a desire to step away from the daily grind, exiting a business is one of the most significant decisions an entrepreneur can make.
Crafting a well-thought-out business exit strategy is essential for ensuring a smooth transition and securing the legacy of the business. In Australia, this process demands careful planning, often involving complex legal, financial, and emotional considerations.
What is a Business Exit Strategy?
A business exit strategy is a carefully crafted plan that allows an entrepreneur to sell their ownership in a company to investors or another business. This strategy provides the owner with an opportunity to reduce or fully liquidate their stake, potentially securing a substantial profit if the business has been successful. Conversely, if the business has not fared well, an exit strategy, sometimes referred to as an exit plan, can help the owner limit their losses.
It’s important to note that business exit strategies are distinct from trading exit strategies used in financial markets.
Understanding a Business Exit Strategy
Ideally, an entrepreneur should develop an exit strategy as part of their initial business plan before launching the company. The choice of exit strategy can significantly influence decisions made during the business’ development. Common exit strategies include initial public offerings (IPOs), strategic acquisitions, and management buyouts (MBOs). The right exit strategy for an entrepreneur depends on several factors, such as the level of control or involvement they wish to maintain, their preferences for the company’s future direction, and their financial goals.
For instance, a strategic acquisition allows the founder to relinquish ownership but also means giving up control of the business. IPOs are often regarded as the pinnacle of exit strategies due to their prestige and potential for high financial returns. On the other hand, bankruptcy is considered the least desirable way to exit a business.
A critical component of any exit strategy is determining the business’ valuation. Specialists can assist business owners and potential buyers in analysing the company’s financials to establish a fair market value.
Business Exit Strategy and Liquidity
Different exit strategies offer varying levels of liquidity for business owners. For example, selling ownership through a strategic acquisition can provide a significant amount of liquidity in a relatively short period, depending on how the deal is structured. The attractiveness of a particular exit strategy also depends on market conditions; an IPO might not be ideal during a recession, and a management buyout may be less appealing if interest rates are high.
Choosing the Right Plan of Action
The best exit strategy depends on the type and size of the business. For example, a partner in a medical practice might find it most beneficial to sell their share to another existing partner. Meanwhile, a sole proprietor might aim to maximise their earnings before closing down the business. When a company has multiple founders or significant shareholders in addition to the founders, their interests must also be considered when choosing the most suitable exit strategy.
Exiting the Business: Two Australian Examples
Let’s explore two examples of business owners in Australia who successfully executed their exit strategies, each with unique challenges and outcomes.
Kylie Kwong
Talk about classic Chinese cuisine in the Australian setting and chances are the name Kylie Kwong is never too far off in the conversation. She has been one of Australia’s best-known food mavens, parlaying 30 years as a TV presenter, restaurateur, and celebrity chef. However, in May 2024, Ms. Kwong said she would shut down her Lucky Kwong restaurant in South Eveleigh, ending a 24-year run in the restaurant business – the restaurant finally shuttered on 26 June. When asked what to do next after leaving the business, she aimed to use her culinary skills as part of social charity work with First Nations communities, including the Powerhouse Museum food education programme.
Douglas Nicol and The Works
Douglas Nicol has been part of creative content agency The Works since 2006, rising up to strategy partner. However, in early August 2024, he announced he was leaving the business after 18 years. His exit came as The Works brand is gradually integrating its service capabilities with Capgemini AUNZ. The Works was originally purchased by RXP Services in 2017, and would also be part of Capgemini’s purchase of RXP in 2020. Agency creative partner Jerome Gaslain has agreed to fill Nicol’s leadership role.
Conclusion
Exiting a business is one of the most profound decisions an owner can make, requiring a blend of careful planning, strategic thinking, and emotional readiness. Whether the goal is to retire, explore new ventures, or simply step away from the industry, a well-crafted business exit strategy is essential for achieving a successful and satisfying outcome.
DISCLAIMER: This article is for informational purposes only and does not supersede official business advice. BARTERCARD does not have working relationships with any cottage industry body or cottage business.
