Exiting an underperforming business which may have been profitable for a number of years can be one of the hardest decisions a business owner will ever have to take, but benefits can follow.

A number of factors could have led to this situation; market changes, increased competition which has impacted upon margins, or perhaps customer bad debts which have put a strain upon cash flow.

Exit should not be seen as failure. Taking the difficult decision to sell or close a business at an appropriate time should enhance shareholder return or, in an insolvency situation, help to stem the loss to creditors and preserve asset value.

What are the options?

  1. A sale of assets;
  2. A sale of shares;
  3. A managed wind down; or
  4. An immediate shut down, possibly though an insolvency process

What are the key considerations?

Process: can the Company simply be struck off, or is legal closure through either a solvent or insolvent liquidation, for example, required?

Timing: the timing may impact upon the costs and benefits of the exit. For example, the exit might be necessarily delayed if profitable contracts are to be completed beforehand.

Costs: proper planning is necessary in order to identify and minimise the costs of exit and limit liabilities.

Employees: the employees are a key component of any business, and they may become concerned about the implications of exit. Employee motivation will be key to facilitate an orderly wind down, and termination costs will have to be properly calculated.

Customers and suppliers: do you intend to announce your plans to your key customers and suppliers and if so, how? Timing and method is likely to be critical and there is the risk of negative perception.

Interested Parties: has the business been properly marketed to determine whether a competitor, for example, is interested in an acquisition? Not only is this likely to enhance shareholder value or minimise the loss to creditors, but the costs of closure may also be reduced if employees are transferred and premises lease costs are mitigated.

Clearly, this is only a summary of the many matters that will have to be considered, but early and thorough planning will help to maximise the number of available exit options which in turn, should help to enhance the position for all stakeholders concerned.

If you would like more information about exiting from your business, please contact a member of our Business Recovery & Insolvency team, who will be pleased to help.

 
 
 
 
The logo for Kreston International Investors in clients logo British accountancy awards finalist 2016 logo ICAEW logo The logo for the Times Top 100 best companies to work for