Exit Strategies for Business Owners: Planning and Implementation

This report examines various exit strategies available to business owners, including liquidation, mergers, initial public offerings (IPOs), and selling to family or friends. It explores the reasons behind business owners' decisions to exit, such as personal factors or market uncertainties, and emphasizes the importance of a well-planned exit strategy. The report analyzes the advantages and disadvantages of each strategy, considering factors like control, financial benefits, and employee impact. Succession planning strategies, such as selling business interests, buy-sell agreements, and private annuities, are also discussed to ensure smooth transitions. The report recommends private annuities as a suitable option for ABC Company, allowing the owner to receive regular payments after transferring ownership, and also highlights the potential for tax benefits and deferral of capital gains. The report concludes by emphasizing the importance of careful consideration of the various exit strategies and their implications for the business's future.

EXIT STRATEGIES

Table of Contents
INTRODUCTION...........................................................................................................................3
a. Reasons present behind the possible exit of a business owner from his business...................3
b. Strategies of succession planning............................................................................................7
c. Course of action for the business...........................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Succession planning is the process for identifying and developing new leaders
who can replace when they leave, retire or a die. Through one succession planning
process, one recruit superior workforce, develops their knowledge, skills, ability and
promotion into ever more challenging tasks. As organization expand, loses key
employees, increase sales or providing promotion opportunities. Accordingly, exit
planning is the preparation for the exit of an entrepreneur from company to maximize
the enterprise value of the company in merge and acquisition transaction and
shareholder value, although other non-financial objectives. This report discusses
purpose of business owner may seek to withdraw from a business through succession
planning.
a. Reasons present behind the possible exit of a business owner from his business
An exit refer to a situation wherein a particular business owner decides to end
his/her involvement with the business. The possible reasons behind the same may be
personal or practical. A business owner may decide to exit business over personal
reasons such as boredom related to a repetitive routine of work in an established
venture or a possible burnout caused by exhausting work load. The reasons may be
practical as well such as market uncertainty based on government policies or consumer
demand. As well as a tough competition from other players in the market threatening
the overall sustainability of business (EA, 2018). Whatever may be the reason, a well
planned exit strategy may help the business owner gain a sizeable profit on his/her exit.

In the section below a critical analysis of various exit strategies is done in order to
identity a possible exit strategy for ABC Company.
 Liquidation:
Liquidization refers to an exit strategy in which the shop is completely closed and
all the remaining assets of the business are sold off. This strategy is best suited for a
company that can no longer operate, or for a business owner eager to exit. It is the
simplest strategy to wound up the business quickly and claim the worth if remaining
assets. Advantages: The major advantage this strategy offer is quick shut down of
business, eliminating the need of long negotiations over equity and expensive billing to
lawyers. All the legal actions which are on a business are at halt when there is
liquidation taking place of the organization. Disadvantages: The business asset of the
organization will be sold of which will make the organization not come up again.
Employees of the business will become redundant and will be forced to look for jobs
outside.
Liquidation is not a good sign for Maray restaurant because they do not want to
lose the possession of the assets of the business. The restaurant wants to keep trying
till they do not succeed in their objectives. Planting tree for the people who have dined
in the restaurant is a very good aim and that should motive the restaurant's employees
to continue working hard and satisfying the customers so that they never have to face
liquidation in the future (Parastuty, Breitenecker and Schwarz, 2016). Restaurant will
not want to leave the employees unemployed for the future and help them as much as
possible.
 Merger:

Merger is when two companies come together to make a new company in
market. This is done so that they can get a competitive advantage in market and be
able to raise the funds for expansion and a little control still stays with them. Having
control over the company is a very important factor for the restaurant so that they can
reach their objectives and aims. Advantages: The research and development
department will increase in the restaurant which is a very good sign for the company.
The economic stability will be better of the organization and that will make the company
have a better stay. Disadvantages: lose the control on the business and that will get
unclarity in restaurant which can make the restaurant suffer for a long run. There will be
lesser choices for the customers which can make the customer level lesser.
Merging will be the best option for Maray to take up so that they can make the
restaurant have a better functioning and the business will not have to dissolve. Control
of the business will be in the hands of the management of Maray restaurant. The
customers count can reduce but the restaurant will not shut down and the restaurant
can function and get the customers again in the long run of the market.
 Initial Public Offering:
More than one investment back is involved and there will be an addition of public
investment in the restaurant. This can make the restaurant lose their command in
employees and that will make the clarity disappear which is not helpful for the long run.
Advantages: Capital involved in restaurant will be controlled and that will make
organization have a better revenue for expansion in country. The stakeholders in
organization will increase which will make the restaurant have better ideas and
innovations coming in the restaurant (IPO Advantages And Disadvantages. 2019).

Disadvantages: There is a loss of control in restaurant of the management which is a
very important factor for them. The market pressure on the restaurant will increase
because there will be more stakeholders to whom the management will be answerable
to.
Involving public in business is not going to make the business have a profit and
having a transparency in market will make the business lose their charm. Maray should
not be using this method to exit because from this they will get a lot of loss and the
employees will not have a proper direction in market.
 Sell to a friend or Family:
Another option for exit opportunity for the organizations in market are that they
can sell those to friends or family so that they can still see the business grow.
Advantages: there will be common values which the restaurant shares with other
companies which they are giving to so that the business can reach the objectives. The
stability in market will remain and the customers will remain loyal but the loyalty will play
a huge role. Disadvantages: There will be lack of skills present in business to run for
long and the conflicts in the family could affect the business. Favouritism can take place
in this favour which will be very harmful for the business.
Selling to a friend and family is not possible for the restaurant because they will
not have anyone in market to trust so much that they can give the business to them.
Trust factor really makes a huge difference and Maray will not be able to do that
because the other people do not hold the same values as the other restaurants in
market.

b. Strategies of succession planning
Succession planning is a process of by which individual are scanned to pass on
the leadership role within a company. The process ensures that business continue to
operate efficiently without the presence of people who were holding key position they
must have retired, resigned. Strategies of a succession planning in a selling business
interest and private annuities, employers can address the primary challenges to
succession. Usually think of a business owner simply handling over the reins to a new
owner or principal when planning succession. Below are six strategies for succession
planning such as:
Selling business interest
Maray Restaurant have the option of selling its business interest in return of cash
or other assets. Company owners can sell it before they retire or die or at any time in
between. Company may have to pay capital gain tax of their company. In case the
owners wishes to retire.
Transferring Business Interest and Buy Sell Agreement

This business succession planning provides transition of ownership and business
management during lifetime or before death. A properly designed buy sell agreement
can allow keeping business in control until death of owner, disability, retirement, or other
specified event. The discussion will provide an overview of buy sell agreement in
general, a brief description of each specific type of buy sell agreement. A buy sell
agreement goes into effect the happening of specified triggering event (Fishman, M and
et.al., 2018). The agreement may build more triggering event into their particular, buy
sell agreement, depend upon the anticipated succession issue. The triggering event
includes the death, loss of required professional licence, retirement, or disability of an
owner of shareholder, or an involuntary transfer.
Self-Cancelling instalment notes
SCIN allow owner to transfer a business to a buyer in exchange for a promissory
note. The remaining payment is cancelled upon the seller's death. Many estate planning
technique are intended to minimize or even eliminate gift and estate taxes when
transferring asset to family members. Sometimes, the most powerful technique also has
a significant drawback, mortality risk. For Example: A SCIN eliminates mortality risk, so
it may be appropriate isn't expecting to reach actuarial life expectancy. But other
potential downsides. Benefits of succession planning are simply another step in senior
leadership strategy to protect the company. There are physically for its long term
success or not. Most Importantly, succession planning let ambitious less experienced
internal candidates know their hard work and skill have been noticed and appreciated
enough to be considered for advancement.

Private Annuities
This is the sale of property in exchange for regular payment to the rest of life.
Ownership of the business company Maray Restaurant is transferred to a family
members, or another buyer, promises to make periodic payment until death (Thirikuand
Were, 2016). This allows avoiding gift and estate tax. A Private annuity is a special
agreement in which an individual transfer property to an obligor. A Private annuity used
to defer United States federal capital gain tax on the sale of assets, to provide a stream
of income and effect to remove the assets from the owner estate thus reducing or
eliminating estate taxes.
Family Limited Partnership
A FLM is a type of arrangement in which family members runs a business
project. Each family member buys unit or share of the business and can profit in
proportion to the number of shares owns, and outlined in the partnership operating
agreement. An FLP are frequently used to move wealth from one generation to another.
Partners are either general partner or limited partner. One of more general partner is
responsible for managing the FLP and its assets (Weisblat, 2018). Limited partner have
no ability to direct, control or otherwise influence the operation of the FLP. An FLP are
typically holding companies, acting as an entity that holds the property such as business
interest, real estate investment, contributed by the members. They allow family
members with aligned interest to pool resources, thus lowering legal, accounting and
investing costs. One of the main advantage of organizing the business as a family
limited partnership is the ability to discount the value of any company.
From the above mentioned succession planning strategies it is recommended

that the best option which is available for Maray Restaurant can be private annuities
which involves a sale of business in return of regular payments to the owner. This
strategy can be a viable option as it will allow the owner of the restaurant to get regular
payments after passing the ownership to any of the family member or even it can be
any other buyer. But in this case it is mandatory for buyer to make promise to owner for
periodic payments. There is another benefit related this option is that it can prevent the
owner form paying of tax which results in tax avoidance but gets a regular payment.
This can also result in deferral of capital gains which can be beneficial for the owner of
the company in the future.
c. Course of action for the business
From the above report it can be concluded that the restaurant, Maray should go
for exit strategy and in that they must opt for merger strategy because that will be very
helpful for the restaurant for the long run in market. This way business will not have to lose there
possession on the asset which they have and the objective they have being it unique in nature will be
beneficial for the world for the long run as well. Merging would make the control on the business be
there though limited but it is going to be there which will let there be a clarity in working of restaurant.
Merging will make the restaurant have more experience and this will make the business improve and
the organization will make more revenue than expected. The customer base of the business will also
improve and the organization will be able to have more loyalty in the organization and that is a very
important factor which will be helpful. Though the command will be shared but getting professional
business to merge with a small business will add more value to the restaurant and that will be more
beneficial. Portfolio of the organization will increase and the customers will get attracted and the funds

will be sufficient for the restaurant to expand themselves in country (Leung, 2018). There will be an
advantage for the small and the large business merging with the organization better, and they will be
able to face them efficiently.
This will increase the value in market share which will be beneficial for the restaurant for long
run. Global growth in market is also an option which will open for the restaurant which will be another
reason for Maray to use this exit strategy. Research and development department is going to have a
better risky factor advantage over because there will be funds investment from the other companies in
this section and the competitive advantage of the organization can improve. Knowledge of the
restaurant's functioning will get better and the organization will be able to make a better growth.
Merging will help Maray from not shutting down forever and will make sure that there are other options
which are in front of them so that they can make customers base for themselves stronger.
This is the best option which Maray can pick for exiting strategy because they will not have to
close down, and they can get a competitive advantage at such an early stage in market. It is very
important for the restaurant to get a place for themselves in market and this can be possible if they opt
for this strategy so that there base and portfolio can improve and that will be beneficial. There will be a
growth in technological aspect as well which can make the company have an effective functioning and
smoother processing in the restaurant which will leave the customers more satisfied.

REFERENCES
Books and Journals
EA, J.L., 2018. THE EXIT STRATEGY. Strategic Finance. 99(8). pp.23-24.
Fishman, M and et.al., 2018. The road to wellness: engagement strategies to help
radiologists achieve joy at work. Radiographics, 38(6). pp.1651-1664.
Leung, J., 2018. Minimum wage and real wage inequality: Evidence from pass-through
to retail prices. Available at SSRN 2786411.
Parastuty, Z., Breitenecker, R.J. and Schwarz, E.J., 2016. Entrepreneurial exit: A
change unfolds. In ICSB World Conference Proceedings (pp. 1-8). International
Council for Small Business (ICSB).
Thiriku, M. and Were, S., 2016. Effect of talent management strategies on employee
retention among private firms in Kenya: A case of Data Centre Ltd–
Kenya. International Academic Journal of Human Resource and Business
Administration. 2(2). pp.145-157.
Weisblat, I. A., 2018. Literature Review of Succession Planning Strategies and Tactics.
In Succession Planning. (pp. 11-22). Palgrave Macmillan, Cham.
Online
IPO Advantages And Disadvantages. 2019. [Online]. Available Through:
<https://www.ipohub.org/ipo-advantages-disadvantages/>