At a recent Pershore College reunion I happily reminisced while perusing some very old issues of this magazine. I was delighted to stumble across a copy, then called GC & HTJ, published in the week I started my horticultural career, 4 July 1977. It was a stark reminder of how much the industry has changed. I was amazed at how many once prominent horticultural companies no longer exist.
This is understandable, as markets are dynamic with businesses needing to adapt or face extinction, but I wonder how many owners who ceased to trade during the past four decades managed to leave or sell their businesses in the way they planned? How many had an exit strategy, and one that proved successful for them in the end?
I particularly enjoy the process of helping get a business established. Creativity, enthusiasm and optimism all run high, but I often find that entrepreneurs do not consider how they will exit their businesses. This is especially important considering the time and money being invested.
What will they do with the business when they retire or are no longer able to work in it? It is important to face the main threats and challenges coming in, but it is just as important to know all your available exits.
So, considering a business exit strategy is essential, even in the early stages of the start-up process. Investopedia provides an excellent definition of a business exit strategy as "an entrepreneur's strategic plan to sell his or her investment in a company he or she founded. An exit strategy gives a business owner a way to reduce or eliminate his or her stake in the business and, if it is successful, make a substantial profit. If the business is not successful, an exit strategy enables the entrepreneur to limit losses."
Now of course this article might not be particularly relevant to you should you plan to work in your business until they carry you out in your coffin. Not a bad strategy, particularly if you enjoy the work and of course have family who are interested in taking over the reins from you - however, you will then need an inheritance strategy.
But many people are not in such a fortunate position and are faced with the dilemma of having to find some way to extricate themselves from the business while maximising their return or indeed hoping that they can use proceeds from the business to fund their retirement. So how can you exit your business? Here are the common strategies:
1 Mergers and acquisitions - this normally means merging with a similar company or being purchased by a larger outfit. In other words, combining two entities into one. This can often be a win-win situation, particularly when both firms operate in similar markets and have complementary skills.
2 Sell - this is selling to person or persons rather than to another company (acquisition). It sounds simple enough, but what are you going to sell and to whom? If you own the freehold you might consider selling this along with the business assets as a going concern. On the other hand, you might consider retaining the freehold, selling just the business to a third party and charging that third party an annual rent for occupying the freehold.
Clearly this can be a complex procedure, so using the services of a specialist sales agent is essential. Let's imagine that you own the freehold of a garden centre and you want to exit the business but the garden centre is not saleable as a going concern, perhaps because it is too small or in the wrong location. Should you find the business unsaleable, do not despair, because the site might have alternative uses and be highly saleable on its own.
Planning rules and local development strategies are also frequently changing, so changes of use, housing development or alternative business uses for sites are all potentially feasible.
3 Make it your cash cow - if you are in the fortunate position of having a successful and profitable business then you might exit by funding someone you trust to run it for you while you take a back seat but retain a financial interest such as annual dividends. You retain ownership and enjoy an income.
4 Organise a management buyout. It might be that you have developed a skilled, loyal and experienced management team who are keen to see the business continue and may be in a position to buy it on mutually agreeable terms.
5 Organise a management "buy in". Different from a management buyout, a management buy in is where you find a talented third party who can add value to your business and encourage them to come and work for you on the understanding that they could eventually buy it from you. Evidently, head-hunting the right person for the business is the challenge here.
6 Liquidation and closure - usually a final resort, but let's imagine that all other avenues have failed. Quite simply, you can close down the business, sell off all the assets, pay off all the debts and then, if you own the freehold, mothball the site or find someone who has an alternative use for it. This is not a bad strategy, particularly if you really do want to get out of the business.
Stock market listing
There is one other exit strategy but it is not common in our sector and it is typified by small, owner-operated enterprises, and that is to organise an initial public offering. In other words, list the business on the stock market. This used to be a pretty common practice and a quick route to riches. Best of luck though - it is fraught with challenges.
All of the above of course need to be chosen and actioned after professional expert advice, and should be implemented as far as possible in a way that minimises disruption to the business and all the staff involved. You will need the benefit of detailed, accurate records so that you can assess and prove your businesses saleability or judge which other exit strategy would be best, so keep your finger on the pulse of your business and be aware of its general health.
Robust financial detail, transparency and solid paper trails will all aid saleability, but you may also need to perform a bit of a makeover to make the business look as lean and attractive as possible.
The best way to make your business saleable is, of course, to make sure that it has a sustainable income stream and that you can show you have developed a sustainably profitable business - now that's another story. Whatever you do, however, do not make a panicky exit. There is nothing worse than tripping over a threshold on the way out or finding out you left something valuable in the building that you can no longer retrieve.
Neville Stein is managing director of business consultancy Ovation