When small business owners are done running their businesses, they need an exit strategy, a way to transition the business to its next stage and get a nice payout. Here’s what that plan should include.
Starting your business from scratch is probably one of the difficult but fulfilling things in the world. You will go through a lot of challenges before your business can be successful. At the same time, you will have some good times when you create a beautiful product and a talented team. It may be hard for you to think about leaving your business after that roller coaster ride, but a good business exit strategy is essential to any business plan.
Whether you formed your business to sell it later or are just exploring your options, an exit strategy will ensure you and your investors are protected. But, first things first.
What is a business exit strategy?
An exit strategy is simply a plan for how the business owner will move on from the business. Founders create exit strategies for many reasons, but one of the main ones is to protect their investment when they’re ready to stop running the business. You should create an exit plan even before you start the company. You can tweak it as your business expands into new frontiers or when your market dynamic changes, but it’s good to know how you plan to leave when it’s time.
Another reason to create a business exit strategy is that it comes in handy when you are looking for financing. Most investors and financial lenders want to know how they will get their investment back from the business if you decide to leave. An investor will also use your exit strategy to determine if they have enough protection if your business fails. This is why you must include your exit plan in the financial section of your business plan.
5 exit strategies you can use for your business
The thought of relinquishing your business after years of hard work may be challenging for most business owners. A good exit strategy created beforehand can help you make rational choices during this difficult period. Here are five common strategies you can use when creating your exit plan.
1. Sell it to a friend or relative
If you cannot fathom giving your business to strangers, then the best route is often selling it to someone you know. This can be a long-time friend or simply a wealthy relative.
One of the benefits of selling your business to a friend is that you can get to see it live on under a different owner. You can also explore different terms when creating the financing agreement. For example, the buyer can choose to pay you gradually, which gives you regular income while reducing their risks. You can also choose to mentor the buyer at this point to ensure that the business continues to run smoothly. You must be cautious when selling your business to a relative due to valuation and estate planning issues. Getting the services of a qualified professional such as an attorney or accountant will help mitigate this risk.
2. Go public
A company is deemed to go public when they sell their shares on the stock market. This is done through an initial public offering, commonly known as an IPO.
Going public will, however, mean that your business ownership will be open to the public. There are a couple benefits of an IPO. First, you are likely to raise huge sums of capital that will help your business grow larger. You are also likely to experience exponential growth when you take your business to the public. It may, however, take lots of time and money as you seek regulatory compliance.
3. Liquidate your business
Liquidation is another option when you wish to close shop for good. Under this business exit strategy, you halt all business operations and sell your assets. You can then use the assets to pay both your creditors and your investors. It is, however, worth noting that your creditors will get the first slice of the cake.
This is one of the most straightforward exit strategies for a small business, as you will not need to negotiate with a buyer or merge with another company. Also note that you stand to lose your business concept, clients, and even employees once you choose this route.
4. Merge with another business
As the name suggests, a merger is simply two businesses combining to become one entity. Mergers are great if you wish to increase your business value proposition. They also work best if you wish to be part of the business even after the merger.
The business owner often manages or even owns the new business entity formed after the merger. You can also choose to retain your employees or start a new hiring process altogether. You must ensure the business you are merging with is a good fit for yours. Otherwise, you may end up losing a portion of your loyal customer base.
An acquisition can also be an attractive business exit strategy. It is simply when one business buys another business and integrates it into its operations. If you decide to use this as an exit strategy, you will have to find another company to acquire yours.
Acquisitions are great options since you name your price, and the other company can choose to meet your offer. A competitor may even choose to pay a premium for your business if it will help them expand their market operations or eliminate competition. If you are willing to let go of your company, then this is probably the best option. Just ensure you get the right advisors to help you work through all the details.
SF&P advisors can help you choose the best exit strategy for your business
Giving up control of your business is not the easiest thing for a business owner. You probably spent hours and hours perfecting your operations. If you think it is time to relinquish control of that, then you should ensure you get the best terms. This is not always the case, and you may need to get the advice of professionals. SF&P advisors can hold your hand as you seek the best exit plan for your business. Contact us today for a quick consultation.