If, for whatever reason, you find yourself considering how to exit a business, it can be an overwhelming decision to have to make.
You’ve poured so much time, effort, and money into your business that it’s vital you make the right decision when exiting your business.
There are five basic options for exiting a business:
- Close it down
- Business sale
- Business succession
- Members’ Voluntary Liquidation (MVL)
- Creditors’ Voluntary Liquidation (CVL) or Voluntary Administration (VA)
Note that these options are not necessarily separate and distinct from one another and may be used together.
1. Close it down
Simply closing down your business may not be an option. If you owe debts to creditors or the business is operated by a company, there are further steps required to close down.
Prior to closing down your business you should:
- Ensure that current and accurate financials are in place so that you know what creditors need to be paid (if any);
- Determine whether your business has any intrinsic value in case a business sale is appropriate;
- Collect all outstanding debts owed to your business; and
- Finalise all necessary tax office lodgements.
2. Sell it
Business sales are common and, in some cases, are an easy way for someone to own a profitable business.
If you want to exit your business by selling it, you should engage qualified solicitors and accountants to conduct the necessary due diligence and ensure nothing goes wrong during the sale and settlement process.
Before that, it’s a good idea to engage business valuation specialists and sales agents to give you the best chance of achieving the right sale price for your business.
On the flip side, if your business (traded through a company) is struggling, a business valuation can act as a guide for what you need to sell your business for. An option may be to sell the company’s business to a new entity for fair value according to the valuation) and continue trading through the new entity. The sale proceeds should be held in the old company for a liquidator to deal with when appointed.
3. Business succession
Ever wondered how to exit a business owned and operated by your family?
A common exit strategy for this type of business is to hand it down to the next generation. While this makes sense in most situations, there are some important questions to consider first:
- Do your children want to run the business?
- Is the business doing well financially?
- Do your children have the required business skills to continue running the business profitably?
If any of the answers to these questions is NO, then perhaps you should consider selling the business to a third party instead. You can utilise the funds from the sale to assist your children in other ways.
4. Members’ Voluntary Liquidation (MVL)
MVLs are appropriate in circumstances where your business is traded by a company that is solvent (i.e. it has enough assets to pay all its current debts). This can be a tax effective way to exit a business by closing the company and distributing funds to shareholders.
If you are unsure whether an MVL is appropriate for you, seek advice from qualified liquidators like those at Pearce & Heers.
5. Creditors’ Voluntary Liquidation (CVL) or Voluntary Administration (VA)
CVLs and VAs are appropriate for companies that trade businesses that are insolvent (i.e. cannot pay all their current debts).
Whether a CVL or VA is the better choice depends upon the size of your business, the debts owed, its assets, its future prospects and what you hope to achieve from a CVL or VA.
Under either option, it is extremely unlikely that you, as a shareholder, will receive any distribution. However, with a VA, it may be possible through a Deed of Company Arrangement (DOCA) to arrange to sell the business to a new entity that you control, reorganise shareholder interests, or break up the business and buy the parts you want from the Administrator.
As you can see: how to exit a business is not a straightforward question to answer. It usually involves getting some professional advice in one way or another.
If you need assistance in considering your exit options, speak to one of our advisors here.