Exit and Succession Strategies for Small Businesses

The assignment provides a detailed discussion on exit and succession strategies that can be used by Panache Construction Limited, a small business. It includes an analysis of selling a business in open market, shutting it down, draining it, and merger & acquisition, along with their respective advantages and disadvantages. The document also highlights the importance of planning in expansion and growth of a company, using Porter's generic model to achieve competitive edge, and Ansoff matrix for selecting best possible growth and expansion strategy.

Planning for growth

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Key concepts which provides options of business growth...............................................1
P2 Opportunities for growth by applying Ansoff's growth vector matrix..............................3
TASK 2............................................................................................................................................5
P3 Potential sources of funding with their advantage & disadvantage..................................5
TASK 3............................................................................................................................................7
P4. Business plan for growth of organisation.........................................................................7
TASK 4...........................................................................................................................................9
P5. Succession and exit plan for small business with its advantage and disadvantage..........9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Planning is deciding in advance about the different approaches which are effective for
growth and expansion of company. This is a process that begins with identification of current
activities and analysis what is to be improved in future(Allmendinger, and Haughton, 2012).
The main aim of company is to expand its business which is possible only when it formulate
proper strategy for growth. This project is based on Panache Construction Limited which takes
contract to build residential houses and offices according to the requirement of their customers.
This report consist Pestle analysis that is helpful in minimizing the threats and maximize the
opportunities. Ansoff's matrix is used for identifying growth opportunities along with Porter's
generic strategy helps in achieving competitive advantage.
TASK 1
P1. Key concepts which provides options of business growth
Planning is the process of deciding in advance about the activities and events in an
enterprise so they become successful and everything done on time. It is very essential for the
attainment of set objectives. Business growth means that company has gained competitive
advantage and moving ahead to grow more for generate maximum profit. Panache Construction
Limited is the company which takes contracts to build houses and want to expand their business
in new country with new services like building cafes and offices. So many external elements are
there which affect the functioning of a company and its success in market. Different factors are
there that require to be consider by enterprises in order to examine growth opportunities which
can be done by various theories and concepts. In context of Panache Construction Limited
company can use below models to examine the elements which will affect its activities and the
strategies which company can opt to deal with those changes in the market.
Porter's Generic strategy
This strategy used for gaining the competitive advantages over the rivals. It also provides
the direction to company to achieve the set goals. Michael Porter formulate four strategies that
are helpful in achieving competitive advantage in marketplace.
Strategies of Porter Generic are as follows:
 Cost leadership: This strategy focuses on capturing larger market share by providing
low priced product and services. There are two major options in this strategy. Business
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can choose to keep the prices of product and services lower and in other option firm must
ensure that offering average price to the broad market share(Berger, and Berger, 2011).
Panache Construction Limited could select this strategy for which company have require
to have investment capital at their efficient logistics and disposal. In this strategy
company must concentrate on internal processes.
 Differentiation: In this strategy, company concentrate on making unique product or
services that are different from those of competitors. In order to get succeed in this
strategy firm needs to put more emphases on research & development, creativity and
ability to provide high quality services. Differentiation strategy will help Panache
Construction Limited in get the competitive advantage in marketplace. With expertise
and skilled employees company construct houses unique, creative and also uses good
quality of raw material.
 Cost focus: This strategy concentrates on niche market and provides low prices to their
products and services. In this strategy company must provide services according to the
needs and wants of the customer. Panache Construction Limited can adopt this strategy to
satisfy customers’ needs and wants.
 Differentiation focus: In this strategy company must focus on focused market and gives
products and services with unique features. Panache Construction Limited can select this
strategy and can builds the strong brand loyalty among the customers(Blackburn, Hart,
and Wainwright, 2013).
From all the above strategy differentiation is one of the best strategy for Panache
Construction Limited. With this company can expand their business in other country and also
can provides unique features in their construction. This helps in beating the competition and
achieves competitive advantages over the rivalry.
PESTLE Analysis:
This tool help companies in identifying the macro factors that are present in external
environment of an organisation. It stands for Political, Economic, Social, Technological, Legal
and Environment (PESTLE Analysis. 2018). As Panache Construction Limited wants to expand
their business in other country. So it very necessary to analyse the external factors of Australia.
Factors of PESTLE analysis are as follows:
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 Political factors: This elements refers to the government policies, local commissioning
process, trading polices, etc. that affects the business(Denton, Forsyth, and MacLennan,
2017). Australia has stable regulatory and political environment which was progressive &
open and gives investors high degree of certainty and confidence. So, Panache
Construction limited has opportunity to establish their business in Australia as there is
efficient, open and transparent legal framework.
 Economic factors: This element related to the taxation, economic policies and structure
that affect the business operations. As being a developed country, Australia provide
several options of infrastructure for construction companies. So, this is beneficial for
Panache Construction Limited that it can get contract to build houses. Another
opportunity for company is the exchange currency rates against dollars and euro are
favourable in Australia.
 Social factors: This elements is related to change in social trends, attitude and beliefs
that affects the demand of company's product and services. In Australia, there is higher
education level so Panache Construction Limited has the best employment opportunity it
leads to company has skilled and knowledgeable employees.
 Technological factors: In this factors, innovation, technological legislation and
emerging technologies affects the demand company's product and services. In Australia,
all companies uses updated and high technology(Glock, Jaber, and Zolfaghari, 2012).
Therefore, Panache Construction Limited also have to use advance technology or any
technology which not used by other firms in Australia which leads to achieve competitive
advantage over their rivalry.
 Legal factors: Elements related to legal factors are legislation, laws and regulations that
directly have impact on business operations. Government of Australia has passed a law, if
company hold assets that are controlled and owned by terrorist organisation than there is
strict actions take by government. So, Panache Construction has good opportunity to
establish their business in Australia as there are proper rules and regulation.
 Environment factors: This element includes impact of adverse weather, ecological and
environment regulation. Government of Australia make certain laws related to
environment safety. Panache Construction Limited must follow the rules that are formed
by government.
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PESTLE analysis is appropriate for Panache Construction Limited to identify and examine
all the elements which will affect its expansion in new country. With help of this model company
can examine the political structure, policies and framework form by government to manage the
activities of companies. With this enterprise can gain knowledge about the elements exist in
external environment that can influence the decisions and performance of company. Evaluation
of these factors help company in identify the opportunities through which company can enter in
new market or can introduce new product in market. By considering all these elements company
can enter into new market and can achieve its set business objectives easily.
P2 Opportunities for growth by applying Ansoff's growth vector matrix
Ansoff's matrix is a strategical tool which is used by companies for formulating strategies
and plan for organisational growth (Gleeson, Dodson, and Spiller, 2012). Igor Ansoff suggested
four strategical approaches with different level of risk. Panache Construction Limited is an Small
business enterprise which deals in providing services related to the construction of houses, now
company want to expand its business. So, company can use Ansoff matrix in order to formulate
growth strategies for expanding its business practices. Following are the four growth approaches
that can be used by Panache Construction Limited:
Market Penetration: - This strategy mainly focuses on increasing the sales of existing
product of an organisation in its existing market and want to expand its business in present
marketplace. Under this strategy marketer reduces price of its existing product in order to capture
larger market share (Goodfellow, 2013). Major benefit of adopting this strategy is that Panache
Construction Limited already has knowledge about the customer’s demand and competitors, so it
can offer the same product with extra benefits or at low price to the existing market for attracting
more customers.
Market Development: - The second strategical option is Market Development Strategy
in which company sell its existing product into new marketplace. This strategy is riskier than the
market penetration as here company finds difficulty in determining the complexity of new
market which in turn may incurred greater amount of expenses to the company. Mainly company
find a new market under this strategy in order to sells its existing products. For example, Panache
Construction Limited can find a new area or market to offer its current services in order to
increase the number of its profits and to sustain in market for long time period.
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Product development: - Another strategical option in Ansoff matrix is Product
development strategy which involves the introduction of new product within the existing
marketplace. This strategy requires the development of new skills & competencies and business
has to develop a product that can appeal its existing market. Product development strategy is
suitable for the business where company want to differentiate it in order to remain competitive in
market. For being successful in marketplace with this strategy Panache Construction Limited has
to add new services to their business operations and they must put more emphasis on things such
as Research & development, Innovation, Being first in market, Providing services as per
customers need and expectations. Research and development department of company play a big
role in this strategy as it suggests various ways in which company can enter or about the various
features which can be offer by enterprise to attract more number of customers and to satisfy their
needs and wants. By offer new services to its customers Panache Construction Limited can grasp
all the benefits of this strategy.
Diversification:- It is a growth strategy where a business tries to introduce new product
in a new marketplace. Diversification is seen as most riskier strategy among all the above but on
the other hand it has a potential to earn the highest return (Hollenbeck, Noe, and Gerhart, 2018).
Panache Construction Limited can adopt this strategy by expanding its operations with new
services and in new marketplace. This strategy huge amount of funds as company enter into new
market with new product. Before adopting this strategy, it is very essential for Panache
Construction Limited to carry proper research in order to achieve its set business objectives and
to sustain in market for long time period.
Above all are the growth strategies given by Igor Ansoff will help company in
formulating growth strategies that suggest the best possible approach for the expansion of
business. Diversification is most appropriate strategy for Panache Construction Limited, as it
want to expand its operations by adding new services to business. Company deal in providing
services related to construction of houses now it want to add new services to its business like
interior & home decor services, Constructions of cafes, business houses and restaurants etc. So,
diversification is a best strategy to opt as company can expand its business in Australia with new
services and it is beneficial for Panache Construction Limited as Australia is developed country
which in turn will provide higher growth opportunity.
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TASK 2
P3 Potential sources of funding with their advantage & disadvantage
Businesses has to perform several activities for proper functioning of the organisation
which require fund to finance these activities ( Sarver, 2015). Panache Construction Limited
provides various services related to the construction of houses by undertaking contracts from
their client. Management of organisation provides the bid for acquiring the contract which is of £
1500000, but the fund available to the company is around £ 20000. So, the management decided
to borrow the additional fund which is around £ 130000. So, the foremost step is to decide the
source from where company can raise fund to perform its operations. These sources are generally
divided into two types that are:
Internal sources :- Fund which can be raise from within the business are known as
internal sources of fund. This includes retain earning, sales of asset, reduction of working capital.
External sources :- External sources of finance are the options that are present outside the
business for raising fund. It includes equity capital, preferred stock, debenture, leasing, hire
purchase etc.
Sources of finance that can be adopted by Panache Construction Limited are as follows:
 Bank loan: It refers to the amount of money borrowed from the bank with an agreement
that amount is payable in future with interest. Bank loan is a type of credit which is
granted for a fixed time period and on maturity the money has to be repaid . Repayment
amount is decided according to its size, rate of interest on loan and its time period. Bank
provides loans to well established business rather than the start ups.
Advantages
 Major advantage of bank loan is flexibility of payment where company can repay bank
on instalments instead of making one time payment.
 It provides tax benefit, as company pays interest over loan which is tax deducted.
Disadvantage:-
 If company borrows too much from banks that it will decrease the cash flow.
 Another disadvantage is that some banks charges pre payment loan penalty.
 Overdraft :- An overdraft refers to the sum of money which bank or financial institution
allow their customers to overdraw from their current account. The over withdrawal
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charges are different and are depend upon the bank rate (Wey, 2015). It is a good sources
of short term finance that help business at the time of shortage of fund.
Advantages :-
 Bank overdraft help in maintaining good cash flow
 It is beneficial for the business which involve greater movement of cash flow and it also
assist in handling mismatch in flow of fund.
Disadvantage:-
 It is the expensive source of finance for long run.
 Another drawback is that interest rate of bank overdraft is flexible and because of which
it is difficult to estimate the budget properly.
 Crowdfunding:- A crowd funding refers to the funding of a project with relatively small
amount of capital from large number of individuals rather than borrowing large amount
of fund from small number of investors.
Advantages:-
 Crowdfunding is the fastest way to raise the fund and having no upfront fees.
 Another benefit is that company can get a platform for marketing its product and also get
an attention through media.
Disadvantage:-
 It is the most riskier source of finance as if company fails in its project than it may affect
the goodwill of the organisation.
 It is a time consuming process.
 Angel Financing:- These are the investors who provide fund to the company in order to
gain equity position within the organisation. Some angel investors inject capital in
business through crowdfunding platforms online or by creating an angel investor
networks to pool money.
Advantages:-
 One of the major advantage is that financing through angel investor is less risky than debt
financing.
 Another benefit is that invested money is not required to pay back in case of business
failure.
Disadvantage:-
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 Major disadvantage is that company will loss complete control and has to share its
ownership and profit in business.
 It takes long time to find suitable investor.
All these are the different methods through which organisation can access funds to execute
business operations. From all above available sources of funds bank loan is one of the effective
tool that could be employ by Panache Construction Limited to start new business. Further,
company can also use bank overdraft to start its commercial activities and to generate profit.
With these sources of funds company can easily manage its financial activities
TASK 3
P4. Business plan for growth of organisation
Business plan refer to the description of how a company can achieve its pre-decided
goals. It is formulated by the manager of Panache Construction Limited in order to achieve its
target at new marketplace and for effective functioning of its operations (Lewis, 2013). It is very
essential for company to develop business plan which help in growth and expansion of business,
it includes creating budget, strategies and deciding future actions to perform operations more
effectively. Panache Construction Limited is a small scale company that offer services related to
the construction of houses. Business plan includes a procedure which are as follows:
Vision:- Its vision is to achieve higher growth and become number one in this sector.
Mission:- Panache Construction Limited's mission is to provide quality in their
construction services for satisfying their customer's need and expectations.
Strategic Objective:- Their main aim is to increase the profit of the company from 20%
to 35% in next 3 years and to satisfy their customers by providing them one place solution for
home as well as office construction & furnishing. The set objective can be achieved through
SMART goals which means objectives should be measurable, specific, achievable, time bound
and realistic.
Financial information:- An organisation has to perform several business operations and
for proper functioning of these operations fund is required by the company(Moseley, 2013).
Finance is an essential part of a company, as it is requires for performing various business
operations in effective and efficient manner(Madlener, and Sunak, 2011). In order to finance
these business activities company has to raise fund from different sources in order to decide the
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best possible method to get finance for an organisation. There are number of cost associated
activities that are performed by the company for its proper functioning such as advertisement,
training, raw material, transportation etc.
Total forecasted Marketing budget
Particular 31/12/15 ($) 31/12/16 ($) 31/12/17 ($)
Implementing
technology cost
15000 - -
Promotional expense 9000 8000 6000
Advertisement
expense
6000 5600 5800
Catalogues 2000 4000 3000
Training charges 6500 8000 8500
Total Cost 38500 25600 23300
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From the above budget, manager of Panache Construction Limited get an estimation
about the expenses that has been incurred by the company in order to come up with new services.
From the above cash flow it can be assume that company has adequate money which can
be used for the payment of their debts and liabilities. Panache Construction Limited has to pay
taxes which changes every year. At the end cash in hand for year 2015, 2016, 2017 are $102203,
$200354, $238503 respectively and its estimated average income of three year is $72001.
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TASK 4
P5. Succession and exit plan for small business with its advantage and disadvantage
It is very necessary to formulate strategies for succession and exit plans. Company wants
to expand their business than it important that there must proper plan for succession. Expansion
of company may also give negative results and this results in failure in firm. Managers of
Panache Construction limited must form various plans and strategies for succession and exit for
effective functioning of company.
Different ways of succession and exit business
When company wants to grow and expand their business than it is necessary to develop
strategies for succession (Williamson, and Parolin, 2013). There may be chances that an
enterprise not able to achieve their goals and also suffers from difficulties that they do not able to
perform there business properly than managers of Panache Construction Limited have to
formulate exit plan.
There are various types of exit and succession plan which are as follows:
Exit options:
 Winding up: This is the method of exit plan that refers to the process in which all the
assets are sold to pay off liability. After paying all liability than remaining amount may
distributed to shareholder and directors of firm.
Advantages: One of the major benefit of liquidation of company is there end to all legal
actions that means there is removal of legal pressure on the directors of company. Another
advantage of winding up is it eliminates the responsibility from the owner of business.
Disadvantage: Drawback of liquidation is company will loose their efficient teams and
workers. Winding up a business needs legal procedure that leads to time consuming process so it
is the disadvantage of liquidation method.
 Selling in open market: In this method, selling a ongoing business in open market and
that can be purchased by third party. There may be rebate in taxes to the party who buy it.
Reason for selling a business in open market is it does not affects the goodwill of
company as it is owned by other party.
Advantages: Benefit of this method is it do not disturbs the image of the firm and
business activities are not going to change as other party purchase ongoing business. This also
helpful in improvement in economy of country.
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Disadvantage: Major drawback of selling a business in open market is knowledgeable
and skill employees may not continue with the firm that affects the operations of company who
buy that firm. Another limitation of this method is financial image of company is come in front
of other parties and this impacts the goodwill of the company.
Shut it down: This is one of the easy and one of the most effective exit strategy for small
businesses. Under this owner of the business sell all the assets in market and sometimes business
and its name is purchase by some other individual.
Advantages: Major advantage of this strategy is that it is very easy and effective exit
option available for small businesses.
Disadvantage: Loss of brand value is one of the biggest disadvantage related with this
strategy and failure to sell the business in open market results in no revenues for the owner.
Drain it: This is another exit strategy, in this owner take huge amount of cash from
business activities every year and keep only enough money which is essential to continue
business operations. When business generated a large amount of profit every year, this kind of
strategy is very effective.
Advantages: This strategy is profitable and effective one. Further, this require less
planning as compare to other exit strategies.
Disadvantages: One of the drawback of this strategy is that it breaks the operational flow
of company and this could face high rate of taxes.
Succession options:
Merger & Acquisition: In merger, two similar size organisation combine together to
form a new enterprise. On the other side, acquisition means buy or taking over another company
and becomes the new owner of firm.
Advantages: One of the major benefit of merger and acquisition is that it eliminates the
future competition by grasping a huge market share. Another advantage of this method is it
provides economies of scale and take benefit of synergies.
Disadvantage: Drawback of this methods is there may be duplication of work. Another
limitation of merger and acquisition is that there may be loose the experienced employees.
All above are the major exit and succession strategies that could be use by Panache
Construction Limited. Selection strategy is done by enterprise as per the different situations
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exist. Every strategy has its own advantages and disadvantages so company require to consider
every factor before choosing and implementing a strategy.
CONCLUSION
From the above project it has been concluded that Planning plays an essential role in
expansion and growth of a company. A business plans provides a guideline for performing
operations more effectively and to estimating the cost required for creating budget statements.
Porter's generic model help in achieving competitive edge over rivals and Ansoff matrix can be
used by Panache Construction Limited in selecting best possible growth and expansion strategy.
It is very necessary for a company to formulate succession plan and exit strategy
that helpful in dealing with future difficulties.
REFERENCES
Books and Journal
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