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Exit strategies for small business owners

With entrepreneurs starting companies at a record pace of 80 businesses an hour, it’s important we learn how to protect our businesses. Business owners will need to think about having a sensible exit strategy for all situations. Protecting your business now can help to plan for the future after years and years of hard work. It also can help to protect your family too.

When you start your own business it can take a lot of effort to get it where you want to be. Working untold hours and sacrificing time spent with family and friends to create your dream business isn’t always as easy as it seems. However, when it comes to the time you want to leave the business and move on, having a plan is a must.

Control the transfer of your business

Some business owners will want to pass their business onto a family member or train a member of the team to take over. This transfer of the business needs to be clearly laid out so that the right terms are negotiated for both parties, even if the business is being passed to family members.

If there is not someone to take over the business, there is a possibility the business will need to be closed or an alternative buyer to be found. Liquidating the company can cost money, therefore, it’s important a business owner plans their exit.

If you want to sell the business

When you’re looking to sell the business, you’ll have to make sure you get the right value for it. In order to maximise the value of your business, you will need to consider the time frames that this will take. If you are able to, plan a longer time frame to stay in the business until you get a buyer who will offer you the right value.

You’ll also need to consider the tax consequences, as well as the people that will be affecting by the sale including customers, suppliers and employees. Having a comprehensive plan can help to assist the transition and ensure that all parties are happy in the transition.

Liquidating the business

If instead, you wish to close down the business you may need to look at the tax consequences. In addition to this, you will need to protect yourself from any business debts or liquidation fees. The process of a voluntary liquidation should be well-planned out with the use of an insolvency practitioner. Proceeds made from the liquidation would need to be used to pay any creditors. This will determine whether your business is solvent or insolvent and if you will have any proceeds. It’s not often ideal to liquidate a company and selling the business will enable you to be better off during your retirement.

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Being prepared for the unexpected

In addition to having a plan in place for when you choose to leave your business, business owners may want to look at planning what would happen if they were to pass away or become seriously ill. Business owners can take out life insurance personally or through their business in order to protect against this circumstance.

Estate planning for business owners

Normally, if you were to pass away your business would fall into the hands of your estate. This is then distributed amongst family members. However, any debts and assets fall to your family too. Whilst this may an ideal situation if you were planning on leaving them the business, but if they don’t wish to manage the business or its closure it can be a difficult and lengthy process.

Planning what happens to your estate can be vital in protecting your family.

Life insurance policies

Obtaining a life insurance policy can help your family to survive financially if they have to close down the business and pay off debts. They could use the money, also, to pay for funeral costs and deal with the loss of one partner income.

In addition to this, a life insurance policy can be written into a trust, and therefore can protect them against inheritance tax. Having a life insurance policy to protect your family makes sense as it can also help them to pay off any mortgages and personal loans too. However, it can mean they need a substantial amount more if they need to take care of the business too.

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Business life insurance

 In addition to a personal policy, business owners may want to look into getting life cover through their business. Life Insurance can be bought through the business and offset against corporation tax so that you can save money on your policy. There are different types of policies where you can decide whether you want the money to go back into the business, or to your family. If the money goes into the business, it can be used to pay off any debts and business loans as well as ensuring any employees, suppliers and customers are properly compensated if they lose out.

Critical illness cover

It may also benefit business owners if they opt to take out a critical illness policy alongside their life insurance. As a business owner, if you were to become seriously ill, it can have a massive impact on your business. Taking a substantial amount of time out of the business can affect the way it operates. The money can be used to help cater for any losses in profits as well as help your family during a difficult time if you’re not earning any income.

Shareholder Protection

If you have partners or other shareholders, a shareholder protection policy will be an essential in your succession plan. Shareholder protection enables your co-shareholders to purchase the share from the estate. This means they are able to keep control of the business. In addition to this, your dependants get a fair price for the value of the share.

A cross option agreement is normally put in place with a shareholder protection. This is so both parties agree to the sale of the share. It also makes the process a lot faster and smoother, so your family have more time to grieve and the business can recover faster.

The reward when you exit the business

With proper planning, the transition of a business can be even more rewarding than the day it started. If you have a good plan in place for your exit strategy, you can really reap the rewards from all your hard work.

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