It’s a common mistake for business owners to put off thinking about business exit strategies until they’re about to step down. However, having foresight about the best options for your business exit strategy is a critical component of building a company. So, even in the earliest stages of a startup, we recommend having a business exit strategy in place!
What Exactly Are Business Exit Strategies?
As an entrepreneur, your business exit strategy revolves around what you plan to do with your business when you are no longer in charge. Business owners can reduce or liquidate their stakes with an exit strategy while still making money. This helps minimize losses in the case of failure. Exit strategies in business are distinct from those in financial markets, where traders are looking to get out of the market quickly.
Ideally, an entrepreneur should include a business exit strategy in their original business plan because the exit strategy will influence business development decisions. These include management buyouts (MBO), strategic purchases, and IPOs.
What Are The Benefits Of Having Business Exit Strategies?
It’s not just about preparing for the unexpected; it’s about building intentional business practices and keeping your eye on the prize. A business exit strategy benefits business owners in the following ways:
- It provides owners with a clear pathway for making business decisions. Setting goals and making strategic decisions will be easier if you keep an eye on where you want to take your company.
- It boosts the value of your business. By showing a dedication to the company’s long-term vision and objectives, companies with a business exit strategy in place have a higher value to prospective buyers than those without one.
- If communicated properly, it ensures a smooth transition. Having an exit strategy and making it known to your employees means that when you decide to close or sell your business, it doesn’t cause distress.
- Choosing the correct exit strategy for your business’s value and potential will likely help you avoid unpleasant repercussions, such as bankruptcy.
Good Business Exit Strategies To Consider
Let’s take a look at some of the options you have for exiting your company. Of course, your best exit strategy will depend on your unique circumstances. There is no one-size-fits-all approach!
Keeping The Family Legacy
Many business owners want to pass their company down through generations by transferring ownership to a child or other relative. This could be a suitable business exit strategy if you can nurture your successors over time.
However, even if keeping the business in the family for generations sounds like the best approach to keep your name in the market, it’s essential to be realistic; not all children want to follow in their parent’s footsteps!bu
Merger Or Acquisition
A merger or acquisition occurs when one company is bought out or combined with another company with similar ambitions. In a merger, aspects of both companies are integrated into the new company. Whereas in an acquisition, one company is absorbed by another.
Unlike an IPO, when the market determines your company’s value, this exit plan allows you to negotiate the sale price.
The downside of this business exit strategy is that it could take a long time. According to BizBuySell, just 20% of businesses listed for sale end up being bought. So if your first choice of exit strategy is to merge or be acquired, it’s a good idea to have a plan B in place just in case!
Ownership Or Employee Buyout
It is possible that when you are ready to exit, people who work for your company may have an interest in purchasing it. This business departure approach could result in a smoother transition and increased devotion to your business’s heritage because these people have a vested interest in the business and may already know how to manage it.
In addition, because these people know you well, they are likely to be more flexible regarding your future involvement (you may want to stay on as a mentor or advisor, for example).
Dissolve Your Company
Liquidation doesn’t have to be a defeat, just the end of an era.
This is the most comprehensive business exit strategy. It involves closing your company and selling all assets. Keep in mind that you’ll have to use the money you make through these sales to settle outstanding debts and distribute profits to shareholders. It’s also important to consider how this exit strategy will influence your employees and clients.
Declare Insolvency
This last strategy isn’t one that any business owner wants to effect, but if things go wrong, bankruptcy may be your only alternative.
Although it may feel like it at the end, filing for bankruptcy isn’t the end of the world. You will probably lose assets and have to repay your debts, but you’ll be free of commitments and the burden of the company.
Bankruptcy is one of the many risks of starting a business. So, if your company is facing bankruptcy, make sure you thoroughly understand the process.
Key Takeaways
Preparing forward is the best way to create an exit strategy business plan. Even before you start your business, think about how you can exit it if the time comes. Proactively planning this process – what it will look like, how it will be implemented, and what the outcomes will be – can help you succeed when the time comes.
Also, remember that there is no universal best business exit strategy; the best exit strategy for you and your company will depend on various circumstances. These circumstances may evolve as your company grows and changes, so be prepared to alter your exit strategy if necessary.
