Whether you’re planning years ahead or responding to a near-term trigger, such as an unsolicited offer, succession issue or investor pressure, having a clear business exit strategy is key to protecting value, managing risk and achieving your longer-term goals.
From tax efficiency to continuity and legacy, the exit route you choose can shape the future of both your company and your personal finances – often long after the deal itself has completed.
This guide outlines the most common business exit strategies for established SMEs, explains who they tend to suit, and highlights the pros and cons to consider when preparing for an exit.
If you're exploring your options and want expert legal insight into what might work best for your business, see how our M&A lawyers can support you in building an exit plan that aligns with your commercial objectives.
Contents:
- What are the different types of business exit strategies available?
- Exit routes for distressed businesses
- What are the main factors for SME owners to consider?
- Which exit routes tend to suit which businesses?
- How does succession planning work, and what are its benefits?
- How do I get started in choosing the right business exit strategy?
What are the different types of business exit strategies available?
There are several common exit strategies for established SMEs, each with different implications for value, control and continuity. The one you choose will depend on your financial, personal and business goals.
Sale to a third party (Merger and acquisition)
An M&A exit strategy involves preparing your business for sale to a third-party buyer, often a competitor or strategic acquirer. Buyers may be looking to increase market share, diversify their offering, acquire talent, or strengthen their supply chain or intellectual property – and they will usually expect the business to be well-run, compliant and capable of operating without you.
A well-run M&A process can allow you to maintain control over price negotiations and key deal terms and may involve an auction process with multiple bidders. On the downside, it can be expensive, time-consuming and management-intensive, often diverting focus from day-to-day trading. There is also no guarantee of a successful outcome.
In addition, a buyer may not be committed to the business in the same way you are, which can result in restructuring, redundancies or changes to products or services following completion.
If you’d like to learn more, see our guide to the M&A process and potential challenges. This video webinar also explores navigating the M&A process and what to expect - perfect if you prefer to watch rather than read.
Selling to an existing partner or investor
Where there is more than one owner, you may be able to sell your shares to a fellow shareholder, partner or investor - often someone already familiar with the business.
This route can minimise disruption and allow the business to continue operating largely as normal, under the ownership of someone already invested in its success. However, it can be difficult to persuade another shareholder to buy you out, and as these are often “friendly buyers”, negotiating maximum value and favourable terms may be more challenging.
Selling shares back to the company (share buyback)
A share buyback (also known as a purchase of own shares) is where the company buys back some or all of your shares, allowing you to exit without involving a third-party buyer. This can work well for a clean or staged exit where remaining shareholders wish to retain control.
Share buybacks are often used as part of longer-term succession planning, but they require careful structuring. While they can reduce disruption and avoid a sale process, the company must have appropriate funding in place and the legal and tax requirements must be met. If not handled correctly, a buyback can be unlawful or void, with serious consequences for the company and its directors, including personal liability.
Family succession
A family succession exit involves passing ownership of the business to a family member, either on retirement or as part of estate planning.
This route can preserve continuity and legacy, and may allow you to remain involved in the business. However, it relies on having a willing and capable successor, as well as appropriate governance arrangements to avoid conflict and ensure the business continues to operate profitably.
Employee ownership trusts (EOTs)
An Employee Ownership Trust (EOT) allows a business to be sold to its employees via a trust that holds a controlling stake on their behalf. EOTs have become an increasingly popular succession option for SME owners.
They can help preserve company culture, reward employees and provide long-term stability. EOTs are also attractive from a tax perspective, as qualifying shareholders may be able to sell their shares free from Capital Gains Tax, provided the statutory conditions are met. However, EOTs are not suitable for every business and require careful planning to ensure the structure is sustainable.
In this article, we answer frequently asked questions about EOTs from our clients.
Acquihires
This is a business exit strategy where your company or business is bought solely to acquire your employees.
This can allow you to negotiate favourable terms while ensuring your team is valued and retained. However, acquihires are relatively uncommon, highly sector-specific, and buyers can be difficult to find. As with traditional M&A, the process can be time-consuming and costly.
Management and employee buyouts (MBOs)
In a management or employee buyout, the existing management team or a group of employees purchases some or all of the business.
This route can support continuity and a smooth transition, as the business remains in familiar hands. However, not all management teams are willing or able to step into ownership, and funding the buyout can be complex.
For further information, we explain how they MBOs can be a strategic way to sell your business, particularly in uncertain economic conditions.
Initial Public Offering (IPO)
An IPO involves listing your business on a public market and selling shares to external investors. While this route has the potential to deliver significant value, it is typically only suitable for businesses of a certain size, growth profile and sector.
The process is complex, costly and highly regulated. Ongoing reporting obligations, regulatory costs and public scrutiny can also place additional pressure on management post-listing.
Exit routes for distressed businesses
Liquidation
Liquidation is often used where a business is no longer viable. The company is closed and its assets sold, with proceeds used to repay creditors and, if possible, shareholders. While it can bring matters to an end relatively quickly, it rarely delivers value and can affect business relationships.
Bankruptcy
Bankruptcy applies to individuals rather than companies, but may be relevant for sole traders, partners or directors who have given personal guarantees. It can relieve personal debt obligations but may have long-term implications for credit and the ability to act as a company director.
What are the main factors for SME owners to consider?
Key factors include business valuation and tax implications, both of which are influenced by profitability, cash flow, efficiency and future prospects. Timing is also critical - many owners plan their exit several years in advance to maximise value and manage tax exposure.
Early planning allows you to consider multiple exit routes, seek expert advice and exit at a point that best aligns with your objectives. For many owners, personal considerations also play a significant role, including reputation, legacy and ongoing involvement with the business.
Which exit routes tend to suit which businesses?
In practice, the most suitable exit route often depends on a combination of business maturity, management depth, funding structure and personal objectives.
For example, third-party sales and EOTs often suit profitable businesses with strong management teams, while MBOs and share buybacks are more common where continuity and control matter more than maximising headline value. IPOs and acquihires tend to be limited to specific sectors and growth profiles.
Understanding where your business sits, and where you want it to get to, is usually the starting point.
How does succession planning work, and what are its benefits?
Succession planning is the process of preparing the business for a change in leadership or ownership. As part of an exit strategy, it helps ensure continuity, reduces risk and makes the business more attractive to buyers or successors.
Effective succession planning considers not only who will take over, but how responsibilities, decision-making and governance will evolve during the transition.
How do I get started in choosing the right business exit strategy?
Choosing the right exit strategy can feel daunting, particularly where personal and commercial priorities overlap. In most cases, clarity comes from understanding your objectives, assessing the readiness of the business and exploring options with experienced advisers.
Getting advice early can help you avoid common pitfalls, preserve value and build an exit plan that supports both your business and personal goals, while keeping you in control of key decisions.
