How to manage an exit from business ownership

09 June 2015

“Liquidity"

Exiting a business is often the last thing on a manager’s mind – but having well-conceived plans in place is key to a smooth transition, writes a liquidity expert

Stuart Lucas

Us business owners are often so heavily preoccupied with managing our firms that planning a path for liquidating our assets so we can reap the benefits from years of hard work is often left until rather late in the day.

It’s not just an issue for owner managers either, since more companies invite shareholders into their businesses – angels, venture capital and the crowd – to accelerate growth.

“Stuart

Those shareholders, like everything else, need to be managed.

Until recently, the most popular means to exit (for all shareholders) was to wait for an IPO (initial public offering) or a trade sale.

However those routes to liquidity are paved with obstacles, and are also not very realistic options.

Trade-off

Statistically, very few private companies achieve either IPO or trade sale, leaving owners and shareholders alike locked in with their investments with little hope of ever realising the value from all their hard work.

Too many private firms are unsuited to float on the London Stock Exchange, or its junior market AIM. They lack either cash, earnings or assets to make a listing worthwhile.

Given the noises emerging from the City about the current downward spiral of the IPO circuit, every company should undertake a serious review of its position before it embarks on that journey.

A trade sale is a less expensive than an IPO and, in the long term, a more straightforward way to provide liquidity.

However, making a business ready for sale often takes much longer than anticipated and the three-to-five year promise can end up being five to 15 years.

After years of blood, sweat and tears, though, every manager, owner and shareholder has the right to an exit.

New avenues

Helpfully, a third option has emerged to address the problems inherent in those two, more traditional methods.

Alternative private markets are acting like secondary exchanges and offer a solution to the long-term problem of buying and selling shares (providing liquidity) in private companies.

What’s more, the timing of the promised exit can be controlled to a fraction of the costs involved in IPO listing fees.

Like many aspects of businesses, exits are something that should be planned for and managed early on.

Business owners should know when and how they and their supporters can liquidate their investments, rather than being locked in.

In the end, every shareholder will see the value of having a share certificate with an exit stamp.

Stuart Lucas is co-founder of online share trading platform Asset Match

For more thoughts on major business decisions, pick up CMI's Change Management Toolkit.

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