An important task often overlooked by business owners is an exit strategy. It has been said that you should have one before you even start up. Contrary to this though, according to one survey by a wealth manager in 2023, about half of business owners confess to not having an exit strategy, while 13% have never even considered one.
An exit strategy is the structured way in which a founder leaves the business they started, and there are numerous ways in which this can be done. Perhaps the holy grail is an initial public offering (IPO) – floating on the stock market, while the polar opposite is bankruptcy following a failed business.
In the middle, and the most likely for a thriving SME are a multitude of options including a management buyout, passing a family business onto the next generation or the formation of an employee ownership trust, to name three examples.
Whatever you choose, if you have employees, one key part to get right is your team; that you have a group of people capable of operating the business without you, either for themselves or a new owner. Here are a few considerations from HR to get you thinking.
A management structure
A management structure will usually be essential to an exit strategy. One of the key struggles for most SME founders will be extracting themselves from day-to-day operations, summed up by the expression “spending time on the business, rather than in the business”.
Hiring first a manager and then, depending on the size of the business, evolving that function into a more comprehensive structure frees you to spend time “on the business”.
Hiring a manager does not simply mean promoting your best technician to the role*. It requires careful thought as to what the role requires, and then finding a candidate to deliver. Think how the role will add value to your business, and what specifically you are trying to achieve.
(*That’s not to say you shouldn’t always adequately reward your best technician with appropriate prestige within the business and remuneration, but you want to keep them doing what they do best.)
With a good manager, or management structure, embedded in the business, it makes it a much more attractive proposition for someone to buy or take the reins.
Recruit people better than you
It is tempting as a business owner to think that no one can do it better than you, no one will care as much. The caring part may be true to an extent, but nevertheless there are plenty of good people who show deep commitment. However, you will find that every aspect of your job can be broken down and (in most cases) there are people who can do the individual parts better.
You don’t even have to rely on internal hiring. Many functions are well suited to outsourcing (like HR), and it need take nothing away from the eventual value of your business. So, to get a better business to sell, never be afraid to hire people better than you.
Family business?
Sometimes family businesses can be a dream, with the next generation sharing the passion and groomed to take over. Other times they can cause more troubles than other forms of business disposal. Perhaps your children’s hearts are not in it, maybe they do not have the capability. When you have other “non-family employees” there is a lot at stake. So it is important to get right.
This requires honesty between relatives, so everyone knows where they stand. It can be helpful to get external help in one way or another to de-personalise matters: Say a business coach to give outside perspective; or have the next generation seconded out to get broader experience before returning to the business, for instance.
Employment contracts
An essential technical matter to get right is to ensure that your employment contracts are all in order. Where TUPE applies, any new owner will be taking on the obligations of these terms and conditions of employment. So any errors will be sniffed out when proper due diligence takes place, and they could cost you – maybe scuppering your deal completely or lowering the value in one way or another.
Food for thought
If this has given you food for thought, or you would like expert advice addressing the “people” part of your exit strategy, reach out to us at your local HR Dept office. We would be happy to discuss your needs and help you prepare so you can exit your business in your preferred way.
