It’s no secret that businesses should have an exit strategy in place. But, shockingly, four in 10 UK business owners admit to not having one.
Like any other business type, manufacturers should have an exit strategy set out to future-proof the organisation. In 2023 alone, the UK saw over 1,340 manufacturing companies go insolvent, a 35% increase compared to the same period prior to the COVID-19 pandemic¹.
A business exit strategy is a planned approach for an entrepreneur or business owner to sell, transfer, or otherwise divest their ownership or interest in a company, typically with the goal of maximising financial returns and ensuring a smooth transition.
Having a clear exit plan will keep a manufacturing business focused on maximising profits and reaching financial goals, improving business performance and resilience, protecting a business from insolvency, and securing your future.
Henry Spencer, Operations Director at BPI, the UK’s leading asset disposal company, discusses the importance of exit strategies and the common strategies for manufacturing businesses of all sizes:
An exit strategy is a prudent business practice for manufacturers. It not only safeguards against potential risks but also enables them to make strategic decisions, optimise the value of their business, and ensure a smooth transition when the time comes to exit the manufacturing industry.
Like all industries, the first thing to consider is fluctuations in customer needs. Manufacturers are subject to economic cycles, market fluctuations, and changing consumer demands. During economic expansions, consumer demand for manufactured products often increases, leading to higher production and sales.
On the other hand, demand can drop during economic downturns, leading to decreased production and potential layoffs. Business strategies and personal goals can also evolve over time. Planning for all potential outcomes and having an exit strategy in place which would help business owners move on when conditions are less favourable, can provide some relief and strategic guidance.
What are common exit strategies for large manufacturing businesses?
Larger and more established manufacturers with well-established management teams may find a management buy-out (MBO) the best option, as the existing management has first-hand knowledge of the workings of the business resulting in a smooth transition.
Sizeable manufacturing businesses with substantial market value and high earning potential are well-suited to sell their majority share to investors, allowing the owner to remain involved with the business to a lesser extent while having extra free time to enjoy their retirement.
There are also different types of closing options for manufacturers that have become insolvent, such as putting the company into administration, and your solicitor will be able to help you with this.
What are the best exit strategies for small or medium manufacturing businesses?
A small or medium manufacturing business owner may choose liquidation to raise funds for their retirement. This would cease the business’s trading completely, especially if they only have a small team of employees or if a suitable buyer to take over the business cannot be identified.
A merger where two manufacturing enterprises are consolidated into one larger company could suit medium business owners in a mutually beneficial way. This transition could allow you to step back from a director position, take a more minor role within the company, or exit the business entirely. Meanwhile, the business itself can grow under new management.
One of the most cost-effective ways to close your small manufacturing businesses is to slow down trading to ‘wind down’ the business and allow it to become dormant. Manufacturers can stop paying taxes if the business is not receiving income or carrying on with trading activity. However, it is essential to note that specific administrative duties will remain, such as annual accounts and a confirmation statement to Companies House².
The strategic benefits of business asset disposal
Selling physical business assets is a great alternative exit strategy for various reasons, depending on the circumstances and the specific goals of the business owner. Selling physical assets, such as manufacturing machinery and equipment, real estate, or inventory, can result in significant capital infusion. This can be especially advantageous if the assets have appreciated in value over time or are in high market demand. If a manufacturer has outstanding debts or loans, selling assets can effectively pay off these obligations, leaving the owner with fewer post-exit financial burdens.
For further information, you can find BPI’s guide to exiting a business here: https://www.bpiauctions.com/news/experts-reveal-a-top-ten-guide-on-how-to-exit-a-business/