What is an Exit Strategy for a Business?
A business exit strategy can be just as important for a business as an employee. Exit strategies occur for many reasons. Often, the start-up owner sees a working business and wants to move to the next idea. However, a business owner needs an exit strategy to help transition the company.
What is an Exit Strategy for a Business?
Depending on your goals for your company, your exit strategy must be tailored to you and your company. If you haven’t created an exit strategy during the formation of your start-up, then you need to check your available options with the help of a lawyer.
Start at the End
That might seem backwards, but it’s true. Depending on your end goal for your small business, you need to make decisions in the beginning that will set up your business in the future for your exit strategy. For example, if you hope your children will take over the family business one day, then you’ll want to begin their training young but require that they get experience in another company too.
When you plan to sell your business eventually, you need to make decisions that will set the future owner up for success. The next buyer may show up any time. Work with an accountant to keep track of the business valuation, too.
Consider your Ideal Exit Plan
Business owners have different goals. Some like to start businesses, get them going, and then move on to the next opportunity. Others want a lifelong business to pour their lives into. Your goals guide what your exit strategy will be.
Ask yourself the following questions.
- Do I want my business to be bought by a corporation that will keep me as an adviser?
- Will I pass the company on to my children?
- Can I run this business until I retire?
- How should I plan for possible injury, illness, or death?
Knowing the answers to these questions will help you prepare your business and employees for the future.
5 Possible Business Exit Strategies
A couple of common exit strategies exist beyond keeping your business or selling it. Knowing which one is right for you depends on your situation and business. Of course, you always want to have your business performing the best it can be as you prepare for any one of these five business exit strategies.
Acquisition or Mergers
Merging your company with another business is not a “get rich fast” plan because it requires a lot of planning to braid two companies together. Of course, both businesses can benefit a lot by teaming up. For example, a brick-and-mortar store that purchases a digital small business reaps the benefits of not recreating the system.
For some this can be a great option to help a business become more forward-thinking, moving them into an area that they may have been missing previously.
Initial Public Offering (IPO)
One way businesses opt to grow their business quickly is by using initial public offering. With the advent of the internet, IPO sprang forth in a big way. Investors in companies can have more knowledge of the businesses than ever before as well.
Before choosing this option, you must ensure that your business has the right structure in place to support the quick growth. Businesses that take this route will experience a lot of difficulty so senior executives should choose this option after careful consideration. This option does not work for every small business.
The Management Buy Out
Sometimes a business is run by a management team that has been through the thick and thin. They know the heart and soul of the small business. Even more, it’s likely that you have a team of employees who are passionate about the company and its success.
When your employees love the company as much as you do, having them buy it from you might be the best option you could choose.
Passing the family business down to a son or daughter is often a business owner’s deeply cherished dream. However, many times that son or daughter has no interest in taking on the family business. This can be a disappointing moment for the business owner.
Family succession can be a really great option for your business if your son or daughter wants to take over the business. They have intimate knowledge of the company and its innerworkings. This can help the transition be easier. But don’t force it if your son or daughter lacks the qualifications or interest.
Create a Passive Income
Depending on the business and the stability of the market, you may be able to buy off the company investors. With a strong management team in place, you can step back and enjoy the cash flow while pouring your ideas into another business idea. Passive income does require your attention so you need to be prepared to pay attention at times.
Obviously, it’s also important to have trustworthy employees working for you. Maintain good communication with your workers.
Close the Business and Liquidate
Sometimes enough is enough. Whether business has been bad or prepping your company for a buy-out or other exit strategy seems too difficult, you can choose to close. This is not failing, and it’s a perfectly acceptable exit strategy.
Once the doors are shut, you can liquidate your business. No need to go down with a sinking ship.
Business exit strategies come in every size and can be different based on your company needs. When you aren’t sure what the best option is for your situation, speak with a lawyer. A lawyer offers un-biased perspective on what your business is worth and what exit strategy would be the best for you.