Exiting your business as an entrepreneur is a serious and heartfelt task. It will bring on a huge series of mixed emotions, as for most entrepreneurs, it's a once-in-a-lifetime exit.

There are a variety of avenues to consider, which will determine not only your future but that of your staff. There is no right or wrong answer, as one size does not fit all and depends on individual business circumstances.

However, a number of questions may help you determine the most appropriate route. Whilst the following list is not comprehensive, it should help give you an indication of what may be the most suitable route for you and your business.

Please see below for an outline of the different options available and a brief description.

Employee Ownership Trust - EOT

The business is transferred to a trust, which holds the shares on behalf of the staff. This option can be highly beneficial as it offers substantial long-term tax-free payments to staff. Additionally, the vendor currently can take all sale proceeds tax-free.

Third-party funding or loan notes may be used to facilitate this type of transaction.

Management Buyout - MBO

A management buyout is when a company's management team purchases the business from its owners.

The management team may be expected to contribute between one and two years' salary each. They will need to raise the money individually to cover all their costs and source their own adviser throughout the process.

The funding is either facilitated by banks, equity providers or vendor loans.

Vendor Initiated Management Buyout - VIMBO

This is where the vendor (as in vendor-initiated management buyout) works closely with the management team, underwriting all the costs. Only one set of advisers is required to facilitate a sale to the management team.

The funding is the same as an MBO.

Trade Sale

A trade sale is when a company is sold to another company (usually 100%) operating in the same or similar industry.

It is not uncommon for an earnout to occur that requires the vendor to remain with the business. If the vendor is not a key contributor to the business, they can usually exit within 3 to 6 months.

There is a risk that if certain functions within the business are centralised, this can impact the future of current staff positions.

Private Equity House Sale – PE Sale

This is where some or all of the business is sold to an organisation that invests in multiple companies. Management is sometimes given the opportunity to have a modest shareholding. Therefore, this is only usually suitable for reasonably sized organisations.

This type of sale is generally focused on an exit and large capital returns for the buyer.

The acquiring organisation may allocate a non-executive director to the board.

Which of the following is most important to you?

1. Releasing as much money as possible straight away. (Trade Sale or PE Sale)
2. Leaving the business on day one of the new ownership, assuming the business is not reliant on you. (Trade Sale/PE Sale)
3. Retaining the culture and values of the business (MBO/VIMBO/EOT)
4. Rewarding staff for years of service by giving them a stake in the new ownership? (MBO/VIMBO/EOT)
5. You want to act quickly (EOT)
6. You want to see your legacy maintained (EOT)

What's best for your leadership team?

1. Do you have a complete and adequate team? (PE/MBO/VIMBO/EOT/TRADE)
2. Do they have the ability to borrow personally up to 2 years' salary? (MBO/VIMBO)
3. Do they have a high-risk appetite? (MBO/VIMBO)
4. Do they have a low-risk appetite? (EOT/TRADE SALE)
5. Do they wish to create a business with capital value to realise again at a future date (MBO/VIMBO)
6. Is your business very dependent on the management team? (ALL OPTIONS)
7. Does the management team see the business as existing in the long term to benefit all staff? (EOT)

To learn more about how we can support you with any of the above, please visit our services page or get in touch to discuss your matter directly with a team member.