What is the best exit strategy for me, my clients and my employees?

Most social business owners face a few, limited choices when they consider their exit strategy. These include passing the business on to family members, encouraging a management buy-out, selling the business to a competitor or closing the business and selling its assets. Some larger business can consider ‘going public’, but this isn’t an option for most SMEs. 

Each of these exit strategies can be a suitable option depending on what the business owner hopes to gain from succession and what their aspirations are for the future of the business.

Employee ownership in an alternative option which offers a tax efficient exit and, along with a guarantee that a business stays in its local community, supports its employees and their families for the foreseeable future.

In this section we’ve  illustrated some of the benefits of employee ownership compared to the most common alternatives.

  • Going public: No, but the business owner may be eligible for entrepreneurs relief. 
  • Trade sale: No, but the business owner may be eligible for entrepreneurs relief. 
  • Liquidation: No. 
  • Management Buy Out: No, but the business owner may be eligible for entrepreneurs relief. 
  • Employee Buy Out: If 51% or more of the business is sold to employees in one year the business owner may be able to claim 100% Capital Gains Tax Relief on the proportion of shares sold.  A qualifying Employee Ownership Trust must be utilised to access this exemption. 

  • Going public: Possibly. Dependent on the shareholding retained and the disposition of the new board of directors. 
  • Trade sale: The business owner could be asked to stay as a manager during an extended handover period. They may be expected to refrain from setting up a similar business for a set time as part of the agreement as well.  
  • Liquidation: Not applicable. 
  • Management Buy Out: The owner could retain an interest in the business. This would be dependent on the view of the buyout team.  
  • Employee Buy Out: Probably. Many funders are looking for business continuity in employee ownership deals and a commitment from an owner to stay on as a manager or in a salaried advisory capacity can be attractive to them. This also gives the new management team access to the owners’ knowledge and business relationships. 
     

  • Going public: Yes, but the value of any retained shareholding will be at the mercy of market changes. 
  • Trade sale: Depends on negotiations and level of interest of buyer(s). 
  • Liquidation: No. The price realised will only be for the capital value of those assets. No consideration is given for the value of the order book, reputation, good will and intellectual property. Redundancy costs will also have to be factored in. 
  • Management Buy Out: Depends on negotiations. 
  • Employee Buy Out: The final selling price would depend on negotiations and approach taken to employee ownership. The deal would be very unlikely to progress unless the departing owner felt they were getting appropriate value from the deal. 

  • Going public: Unknown. The company will be run by a board that will make decisions based on the needs of shareholders. 
  • Trade sale: Unknown. The buyer may decide to asset strip the premises and lay off workers or move production elsewhere. 
  • Liquidation: No. They are made redundant. 
  • Management Buy Out: It is likely that most employees would retain their jobs. 
  • Employee Buy Out: Yes – and they will benefit from increased engagement and the opportunity to contribute to the development of the company and share in its success. 

  • Going public: Unknown. The company will be run by a board that will make decisions based on the needs of shareholders. 
  • Trade sale: Unknown. The buyer may choose to move the business closer to its own centre of operations. 
  • Liquidation: No. 
  • Management Buy Out: Probably, but this depends on the aspirations of the new management team. 
  • Employee Buy Out: Yes. In fact an employee buyout could make it much more difficult for the company to be sold to an external buyer in future - ensuring it is likely to stay in the local community. 

Now that you’re familiar with the benefits of employee ownership as an exit strategy, find our more about the process of transferring to employee ownership.

Would you like to speak to somebody about employee ownership?

Contact Business Wales by calling 03000 603 000 and quoting ‘EO2016’. We will be happy to arrange an informal discussion with one of our Social Business Wales employee ownership experts.