Managed Exit: how to avoid the scary pitfalls
September 16, 2015
It is estimated that around 1,000 small and medium sized UK businesses (with 25+ employees) are wound down and closed every year by their management / shareholders, completely outside of any insolvency process.
At a basic level, achieving such an exit only requires either (i) the business to have a surplus of realisable assets over its liabilities or (ii) shareholders (or a wider group) willing to fund any shortfall. But, given one of these two is in place, management teams could and should always strive for a managed exit.
Managed exit is the winding down and closing of a business in a controlled way, which avoids the plentiful pitfalls, minimises the potentially painful costs and maximises the ultimate return to the shareholders.
In most cases, the members of the existing management team will have little or no relevant first-hand experience of closure – why would they? However, caution is required, as there are a number of scary pitfalls awaiting the inexperienced and unprepared when winding down any business:
- Nasty liabilities and problems arising when they are least expected…investment in thorough and detailed planning is a necessity.
- Being left in the lurch with insufficient people to complete the wind down…a realistic assessment of the time the exit will take will greatly assist in getting the resource planning and incentivisation right.
- Unexpected claims being submitted by former employees…diligent adherence to the plethora of relevant employee legislation is essential and specialist input is highly recommended.
- Less than flattering articles appearing in the press and on social media…an appropriate PR strategy should be agreed to before starting any wind down activity.
- Realising that the project cannot be closed out due to open ended commitments…a thorough review for warranty and similar liabilities is imperative, so that any actual or potential exposures can be identified and addressed at an early stage.
- Questions being asked, which no-one knows the answer to…sufficient, and early, attention should be given to knowledge and record retention – don’t leave this until the end.
- The project running way over budget…when forecasting the likely cost, it is important not to under-estimate the time it will take and the breadth of issues that will need to be dealt with.
In the forthcoming series of blogs, I will look at some of these scary pitfalls and, from my experience, suggest the steps required to avoid them.
Are you contemplating a managed exit for your business? What pitfalls concern you the most? Share your thoughts below or schedule a meeting to discuss your situation in confidence.