In line with the UK’s mission to achieve a net zero economy, there has been a huge shift towards timber engineering and increased use of wood in construction.
Although the woodwork industry appears to be returning to a period of stability compared with recent years, the wider construction industry forecasts suggest a steep decline in output is coming¹.
With this in mind and a recent study showing four in 10 UK business owners do not have an exit plan in place, James Mellars, Key Account Director at the UK’s leading asset disposal company, BPI, discusses the importance of exit strategies for woodworkers and common exit plans for woodworking businesses of all sizes.
While the focus of an exit plan is often considered with downsizing or closure, it should also be used as a financial plan to maintain business continuity, even if on a smaller scale. Some exit plan options, like management buy-out (MBO), include retaining key clients, skills and assets that are essential for future opportunities.
With construction output forecasts suggesting a decline, woodworking businesses should have an exit strategy in place in order to assess their financial situation and determine the best approach for mitigating any future losses. It allows for the efficient allocation of resources, such as selling equipment, liquidating assets, and reducing overhead costs to maintain financial stability during a downturn.
What are common exit strategies for large woodworking businesses?
Larger and more established woodworkers 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 woodworking 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 woodworkers 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 woodworking businesses?
A small or medium woodworking 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 woodworking 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 woodworking businesses is to slow down trading to ‘wind down’ the business and allow it to become dormant. Woodworkers can stop paying taxes if the business is not receiving income or carrying on with trading activity. However, it’s essential to note that specific administrative duties will remain, such as annual accounts and a confirmation statement to Companies House².
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 woodworking 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 woodworker has outstanding debts or loans, selling assets can be an effective way to 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/