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3 business exit strategies for a failing business to consider

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3 business exit strategies for a failing business to consider

By , November 5, 2021
business exits

The failure of a business is never easy. It can have a huge impact on the mental health and wellbeing of employees, shareholders and directors. But it’s important to remember that there are options when you’re in this situation.

This blog post will explore three exit strategies a failing business can use in order to move forward. Succession Plus usually works with business owners that want to plan and prepare for their business exit. That said,  we also like to share advice and ideas with those who are in more immediate need of help.

An exit strategy is what you should develop when your business fails. A lot of owners don’t know how to handle this situation and find themselves floundering, unsure about the right way to move forward.

What is an exit strategy?

An exit strategy is creating a plan for the steps you will take to remove yourself from your business. This is important if you’re business is growing successfully and you’re considering a sale. But it is also very important if you’re business isn’t performing as you’d like. In this instance, an exit strategy is another term for the last resort when nothing else works. It’s is also called an exit plan or succession plan.

The primary objective of an exit strategy is to have a contingency plan when you cannot rescue your company from failure any longer. It enables you to exit on your own terms by selling the company or breaking it apart, if the exit is necessary.

When you develop this type of exit strategy, you are planning for failure in case all else fails. It’s important to have options available when that time arises.

When should you develop an exit strategy?

You should be developing an exit strategy when you realise your company isn’t performing as you’d like. It may seem quite strange and defeatist, but it is responsible for directors of a business to do this. The earlier you do it in your business lifecycle the better. If you leave it too late you will have diminished options, and your exit will be less beneficial both to the company and yourself.

You also need to have a clear exit strategy in place before any formal funding takes place. Not just with investors but with creditors too, who may have loaned you money if the exit strategy is successful. It’s not so much about getting funding but you need to know how it will be returned and when.

The exit strategy should also be on your business plan as a continuity risk and included in your exit-succession plan for any new investors/shareholders.

3 exit strategies for a failing business to consider

1. Business Liquidation

This means that assets are sold off in order to pay creditors. It should be considered as a last resort because it can damage your reputation and turn customers away. This exit strategy is used when there simply isn’t any money left to keep the business afloat; it’s time for owners to walk away.

2. Business Abandonment

This exit strategy involves shutting down the company or at least ceasing operations until further notice. The idea here is that you take a break, assess your situation, then restart at some stage in the future if you are able to do so. It could be that over time you find funding once more, or perhaps you realise another avenue of income allows you to come back later on stronger than before.

3. Sale of Your Business

Selling your failing business is sometimes the only exit strategy available to you. Although it may feel like the last thing you want to do, it could be your only way forward. A buyer is likely to snap up your company for a bargain price if they know you’re desperate and they work hard to get everything done as quickly as possible.

What exit strategies can often come down to is withdrawal and taking time out. A business owner needs some space after the failure of their company in order to recharge their batteries and recalibrate their mind-set before starting again on something new. That might even be the exit strategy that works best for them, but only when they’ve found themselves an exit plan along the way!

Kevin Harrington

Kevin Harrington

Partner | Succession Plus UK

Kevin Harrington has an interesting career history that embraces product and services businesses at all stages of their journey. He has worked in technology, telecoms, consumer electronics, payments, media and publishing.

He was CMO with The Panoply. The Panoply is a digitally native technology services company, founded in 2016, with the aim of identifying and acquiring best-of-breed specialist information technology and innovation consulting businesses. The Panoply was listed on AIM on 4 December 2018.

Before that he was Chief Commercial Officer for Tungsten Network. Tungsten is a leading global supply chain enabler headquartered in the heart of London that specialises in e-invoicing.

Previous roles have included working with SMEs and large international businesses. Some highlights are Managing Director at the Emerging Payments Awards and the Prepaid Awards; Managing Director of Gx; Director of Sodexo Motivation Solutions; Global Marketing Director at BBC Worldwide; Product Group Marketing Manager with Sony UK.