HNC Business: Unit 42 - Planning for Growth - Exit Strategies Report

This report provides a comprehensive analysis of exit and succession strategies for Millers General Store, a chain of successful stores in the UK. The report explores various exit strategies, including liquidation, selling the business (to employees/managers or in the open market), and Initial Public Offering (IPO). Each strategy is critically evaluated, outlining its advantages and disadvantages. The report also examines succession planning as an alternative to exiting the business, discussing family succession and the appointment of successors. The analysis leads to a recommendation for the best exit strategy for Millers General Store, considering the company's specific circumstances and objectives. The report is structured to address the learning outcomes of Unit 42, focusing on assessing different ways a small business owner can exit the business and the implications of each option. The document is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

PLANNING FOR GROWTH

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
LO 4.................................................................................................................................................3
Exit and Succession Planning......................................................................................................3
Succession planning as the exit strategy......................................................................................7
Recommendations......................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Exit or succession strategies are mechanisms that are adopted and evaluated when the
existing business owner of the company decided to give up his business or organisation and take
retirement (Rahyuda, Indrawati and Satrya, 2017). Millers General store is a chain of very
successful stores that are operating all over the UK and the owner plans to evaluate the various
exit and succession strategies that are available for the business and the identify the best amongst
them. In the following report, critical analysis will be done on all the methods available to the
owner of Millers store and then a best strategy would be recommended to them in the hand.
MAIN BODY
LO 4
Exit and Succession Planning
Exit strategies signifies the mechanisms that business owners resort to when they tend to
close down their own businesses due to loss in the business, due to the recession in the economy
or due to any other personal reasons that the business owner might find appropriate and adequate
as a reason for shutting down the businesses. For Millers General Store, shutting down of their
stores might become necessary if their products become redundant in the market i.e. the lack of
innovation in the products sold by them can reduce their market share thus forcing them to close
down (Ruiz‐Miranda, Vilchis and Swaisgood, 2020). When the business owners tend to close
down their existing businesses, there are various exit strategies that are available to such owners.
However, each exit strategies have their own advantages and disadvantages which can be
evaluated in following manner:
Liquidation: Liquidation strategy involves shutting down the business by selling the assets at a
lower price than their actual market value. This step is adopted when the business is no longer
capable of clearing their all the debts and payments to be made. This can be adopted by small
business or sole proprietors because for them the risk of being unable to repay their debts is
usually higher due to the lower capital invested. This can either be done by engaging in cash
payment to all the debtors or the owners can also plan to close the business over a particular time
period (Onwuka and et.al., 2017). Therefore when the liquidation is done on an immediate basis,
all the dues or liabilities of the business are paid by the small businessmen on an immediate basis
in the form of cash that is available in the firm. But contrary to this liquidation can also be done
over time i.e. under this, the owners begin clearing of their dues and reducing the number of
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liabilities long before the time for liquidation actually arises. Under this the owners do not try to
keep their organisation running on the survival basis, but they realise the need to close their
business and begin this by extracting the majority of the profits that have been earned rather than
investing them again in the business. Therefore, in the two techniques of liquidation that were
discussed, the owner of the business has to focus on the outputs of the business i.e. the manner
and quantum in which liabilities can be met because they are the liable parties and therefore, it is
an extremely risky and at the same time a better option also because the liabilities can be met in a
better manner (Pisoni and Onetti, 2018). There are certain advantages and disadvantages
associated with the liquidation technique of closing business:
Advantages Disadvantages
 The entire process can be executed very
easily and there is no requirement of
any special expertise. The cost
calculations of the assets are simple and
can be done easily thus avoiding any
complications that might arise.
 The risk of selling the assets is
comparatively lower because these
were created by the owners themselves
and therefore, these can be wound up
easily.
 The owners have the opportunity to
withdraw cash regularly from the
business rather than investing it and
causing further losses.
 The entire process of liquidation is very
quick and the business can be wound
up very easily.
 The value realised from the assets at the
time of liquidation is much lower than
their actual value thus making the entire
process loss- making for the business
owners.
 The company is also unable to generate
any goodwill amount from the sale of
business due to the act of liquidation.
 The creditors of the company always
have the fi9rst claim on the company
and this is therefore a tiresome situation
for the owner where meeting the
demand of all the creditors in the funds
available is difficult (Rahyuda,
Indrawati and Satrya, 2017).
 When the owners begin to draw out
funds early from the business, then this
completely nullifies any chances of
growth or chances that the business
might be saved.
 Taxes on the owners salary are an
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additional expenditure that they would
not have borne otherwise if the money
had not been withdrawn from the bank.
Selling business: This exit strategy signifies that rather than liquidating or winding up the
business, the ongoing business is sol as it is to somebody else (Leonard, 2019). Now, this selling
of business can also be done in two different methods where it can either be sold to the
employees and managers of the company or it can be sold in the open market:
 Selling in open market: This is the easiest exit strategy where the owner simply sells his
entire business in the market. The company can be brought by anyone who is able to pay
the price that is being demanded by the owner of the business. The price if often
determined after considering the market or industry in which the business is operating,
the goodwill and brand value of the business and the current situation in which the
business is, i.e. is it running in a stable manner or not (Keller, 2018). Under this
technique, once the owner sells off their business to the, they don’t have any kid of
claims over the business and they have to walk away. However, even this simplest exit
strategy has some pros and cons associated with it:
Advantages Disadvantages
 When the business is profitable then
it becomes very easy and quick
procedure to sell the assets as
quickly as possible (De Massis and
Kotlar, 2019).
 Through this method the owners can
gain maximum prices for the assets
that they intend to sell. The past
business and its goodwill is helpful
in increasing the overall amount
raised from the sale of business.
 Getting a genuine buyer for the
organisation can be an extremely
difficult and tedious task for the
owner.
 The actual value along with the
goodwill of the company might
not value up to the amount that
was expected by the owner thus
presenting further difficulties.
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 Selling to employees or managers: Under this exit technique the employees of the
company and its managers, who are invested in the success of the organisation and, are
familiar with the manner in which it is operating, are sold the business (Xie, Ma and Lu,
2016). This helps in keeping the business running and since the managers or employees
usually have good knowledge on how different situations are to be met, the owner can
retire from their duties without winding up the entire business. This can ultimately help in
running the business even after the owner no longer wishes to continue it.
Advantages Disadvantages
 The major advantage is that the
business remains in the hand of
people who understand it and have
full knowledge regarding its
different aspects.
 Additionally, the employees of the
company who have been loyal get a
chance to work hard in order to take
their organisation further which is a
major motivational reason for them.
 Since the employees or managers
are salaried persons who have a
fixed income generation from
their business, the uncertain that
ownership brings with its profits
and losses, can be unsettling for
them (Pickard, 2019).
 Also, there is high risk associated
with the change in the
management of the business
because the new management
might not be a perceptive or risk
taking as the older one thus
increasing the risk of profit
earning.
Initial Public Offering (IPO): The initial public offering is the listing of the company on the
sense i.e. issuing shares n the share market where the shareholders become the owner of the
business with the percentage of shares that they hold. This method, however, is least preferable
for the small businesses due to the fact that the shares can be easily traded and issued only when
the entire capital is in the larger amounts (Viaggi, 2019). This is the most lucrative exit route that
can be adopted by the businesses but only when the amount of capital being offered to the
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potential shareholders is in larger quantities. There are various advantages and disadvantages that
are associated with this type of exit strategy:
Advantages Disadvantages
 The major advantage is that the owner
can generate large amount of cash
within a short time period and
therefore, they do not have to wait for
too long for collecting the cash money
(Leonard, 2019).
 This process of exit strategy can
contribute in raising the profits by the
amount which might be much larger
and profitable then it was expected to
be.
 This also increases the flexibility and
does not involve any major costs while
engaging in the selling business of the
company.
 In order to get the company registered
under IPO, the entire process becomes
too long and time consuming for those
seeking immediate closure of the
business.
 Further, when the money is raised
through IPO the owners might not be
able to withdraw their amount at the
same time because the new owners or
the shareholders might want to hold on
to that money in order to ascertain how
much profits or funds have been
generated.
 This method is not at all suitable for
small business owners because the
complicacies involved are too intricate
in the process of issuing IPO.
The entire analysis conducted above related to the exit strategy that is available to the
Millers general store, it can be concluded that the selling off of the business would be the best
strategy if the owners intends to wound up the existing business. Since the current employees
and managers working at Millers store are competent and are aware of the situation that can arise
in the business, the best option therefore would be to sell the business to the management and
employees of the Millers general store.
Succession planning as the exit strategy
If the owners of the business do not intend to close down their business and want to
exercise or retain at least some sort of command over the business, then they can choose for the
option of appointing a successor to the business (Satola, Wojewodzic and Sroka, 2018). In this
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manner, the business does not come to the closure and it is also existing in one form or other.
This succession planning can be done in two manners:
Appointing a successor from the family: There are a large number of owners who state that the
business must remain in the family only and therefore they tend to create a legacy by appointing
one of their family members as heir or successor of the business (Koładkiewicz and Wojtyra,
2016). This ensures continuance of family name over the business and the successor only needs
to conform to the business practices that have already been developed over time. This type of
succession strategy ale helps in maintaining the status quo of the goodwill that is associated with
the business.
Advantages Disadvantages
 The investors of the company are
assured that despite the change in
the management, the business will
successfully achieve their long term
objectives or their vision.
 When the ownership of the business
is in trustworthy hands, all the
stakeholders are satisfied that there
would not be any fraudulent cases
thus giving mental peace.
 Transferring the business into family
does not necessarily ensures that the
company will be in same profit
making situation as it was before
(Ruiz‐Miranda, Vilchis and
Swaisgood, 2020).
 Fights are very common between the
family members and in some
particular cases, these fights can
lead to the closure of the business
which is not a good situation to be
in.
Successor being appointed from the internal management: Under this technique, the owner
appoints a successor from the employees or the management of the company (Lindsey, Mauck
and Olsen, 2018). The employee with best performance is identified and then he is trained
regularly regarding the additional duties that he will have to perform on being appointed as
successor and after the owner finds their performance satisfactory, they are appointed as
successor of the company.
Advantages Disadvantages
 The major advantage is that the  This might create redundancy in the
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person who is being adopted has
the entire knowledge of the types of
decisions and risks that company
takes and therefore the chances of
continued business success are
higher (Viaggi, 2019).
 All the details of the business
remain inside the business only.
organization and the vision of the
company might not expand.
 Since the employee is comfortable
with the practices that have long
been adopted in the business, they
may avoid implementing any change
and this lack of dynamic leadership
can create a loss making scenario for
the organisation.
Appointing external person as successor: through this technique the successor is appointed from
the external resources or candidates that the owner finds suitable. Under this some of the
potential candidates are identified and then after their thorough testing, one of them is selected in
order to lead the organization (Pickard, 2019). He is then trained and equipped with all the
current practices and traditions being followed in the organisation and after that, the
organisation’s responsibility is given to him. However, under this case as well, there are certain
advantages and disadvantages that are associated with the succession planning:
Advantages Disadvantages
 Appointing an external person
helps in giving a new vision to the
business because his thinking has
not been conditioned with the rules
followed in the company and
therefore his view can be separate
from the others thus providing the
necessary change in the
organisations.
 Overall, this can lead to further
diversification and success of the
entire business.
 The external person might prove to
be untrustworthy in the long run and
if in alliance with the competitors,
then he may lead to the closure of
the entire business (De Massis and
Kotlar, 2019).
 There might be the added risk of the
successor becoming incompetent
leader because of the lack of any
loyalty from the employees of the
company towards him.
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Therefore, it can be adequately said that if Millers general stores intends to appoint a
successor than it should be done either from within the family or amongst the employees that are
working for the organisation.
Recommendations
On the basis of the entire analysis done above regarding the different exit and succession
strategies that are available to the business organisation, the best tactic that can be recommended
for the owner of the Millers General store is that:
 If the owner intends to sell the business, then he should go for sell in the open market. The
reputation and goodwill of the entire branch of stores is extremely well developed and
customers have always stood loyal to the company. Therefore, the amount that the owner
will be able to generate through this method will be higher and maximum value from the
assets can be gained.
 If the owner plans to appoint a successor, then either appoints the one form the family or a
one amongst the existing employee base of the company. This will help in ensuring that the
business stays on the track of success and profits and the risk of external parties affecting the
overall operation of the company can be minimised due to this.
CONCLUSION
The research conducted in the report above shows that the planning to exit or appoint a
successor is a very critical process where the owner has to take some very important decision
regarding the business. Various exit strategies were evaluated for the owner of the Millers
General store which is a small business and additionally, if the owner wished to appoint a
successor than succession strategies were also evaluated. It was concluded overall that the best
strategy for the owner of Millers General store was to ether sell the business in the open market
or either appoint a successor from within the family or amongst the employees for the
undisrupted success of the organisation..
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REFERENCES
Books and Journals
De Massis, A. and Kotlar, J., 2019. Case Studies, Movies, TV Shows and Other Family Business
Resources. Entrepreneurship & Innovation Exchange.
Keller, J., 2018. Succession Planning Management. In Succession Planning (pp. 41-48). Palgrave
Macmillan, Cham.
Koładkiewicz, I. and Wojtyra, M., 2016. Entrepreneurial Exit: Research Perspectives and
Challenges. Problemy Zarządzania. 14(3 (62). t. 2 Rozwój badań nad przedsiębiorczością
w kontekście globalnym), pp.89-106.
Leonard, B., 2019. Irish farm succession and inheritance; an examination of farmers’ economic
decision-making strategies as socially-constructed risk assessment (Doctoral dissertation,
NUI Galway).
Lindsey, K., Mauck, N. and Olsen, B., 2018. The coming wave of small business succession and
the role of stakeholder synergy theory. Global Finance Journal, p.100457.
Onwuka, E.M. and et.al., 2017. Succession Management and Organizational Survival in Selected
Transportation Companies in Ontisha, Nigeria. International Journal of Management
Sciences and Business Research. 6(1).
Pickard, D.C., 2019. Why Small Business Owners Have or Do Not Have an Exit Strategy. Muma
Business Review. 2. pp.159-164.
Pisoni, A. and Onetti, A., 2018. When startups exit: comparing strategies in Europe and the
USA. Journal of Business Strategy.
Rahyuda, A.G., Indrawati, A.D. and Satrya, I.G.B.H., 2017. Exploring entrepreneurs exit
strategies in Indonesian small and Medium-Sized entreprises. International Journal of
Entrepreneurship.
Ruiz‐Miranda, C.R., Vilchis, L.I. and Swaisgood, R.R., 2020. Exit strategies for wildlife
conservation: why they are rare and why every institution needs one. Frontiers in Ecology
and the Environment.
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Satola, L., Wojewodzic, T. and Sroka, W., 2018. Barriers to exit encountered by small farms in
light of the theory of new institutional economics. Agricultural Economics. 64(6). pp.277-
290.
Viaggi, D., 2019. Entry and Exit of Farmers Across the EU. b3522 Rural Policies and
Employment: Transatlantic Experiences 6” x9” FA, p.18.
Xie, X., Ma, H. and Lu, X., 2016. Toward a typology of exit strategies. Management Decision.
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