The Risk Of Having No Exit Strategy For Your Business

When you run your own business, you think about what you are doing today, tomorrow, and a few weeks in the future. But do you ever stop and think about years in the future? Have you considered what happens when you retire? Have you thought about an exit strategy for your business?

While you may only be in the early days of running your own business, or think that exiting your business is years off, what if it came sooner? If you suddenly won the lottery tomorrow, would you still want to run your business? What about if you were offered a home in the country of your dreams? What would happen to your business then? If you had a car accident or serious illness, would you still run your business? There is a real risk to having no exit strategy for your business, because none of us really know what is round the corner.

Without a carefully planned exit strategy in place, you could be carrying some of the biggest financial and legal risks know to business owners.

For example, you may find that the money within the business is locked in. This means that you will need approval from the board to gain access to ‘your’ money. Other shareholders and the buyer must be willing to pay. With no plan, you could quickly feel stuck.

If there is no exit strategy planned for the business, then this can lead to disputes. Different shareholders may have different ideas and plans for the business and their future. This can lead to deadlocks on voting, legal battles and fall outs. Disagreements like this can hold up sales and destroy deals.

In some cases, there can be forced exits. These can arise because of a crisis such as financial pressures or emotional pressure. An agreed exit process or plan need to be in place to avoid the risk in legal costs and avoid the risk of lower valuations or poor negotiation leverage.

There will be times that death, disability or divorce can lead to shares of the business being passed to heirs that don’t understand the business or want to be part of the business. With no exit strategy in place within the business for circumstances like this, it can result in people that are not the right fit for the business making bad decisions that damage the business.

It is important that you have an exit strategy in place for your business for tax efficiency too. Having no exit strategy for your business can mean that you face serious tax liabilities that result in costly outcomes.

Need help ensuring you have an exit strategy in place that will protect you and your business? Contact our corporate lawyers in Peterborough now. We have helped many business owners create their exit strategies. Our corporate solicitors have seen the benefits of getting an exit strategy in place sooner, rather than later.