How To Plan Your Business Exit Strategy: Smart Things You Need To Know
As an entrepreneur or startup founder, you need to always think about your business exit strategy and thus your next move. Having your business succession and exit strategies all mapped out will help you to stay focused on the business path you have chosen. How to prepare an exit strategy is not as difficult or demanding as most people think it to be. Your business exit strategy should be something you need to keep in mind at all times. There are certain questions you should be able to ask yourself.
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- What will become of your business once you are no longer actively involved?
- How are you going to scale through that and come out on top?
- Who should be in charge after you are no more?
- How long do you plan to stay involved in the business?
- What are the goals of the business?
- Are there investors or creditors that need to be paid off?
These and many more questions like that should keep your mind occupied when planning your business exit strategy. There are many reasons why entrepreneurs and startup founders seek business succession and exit strategies. We shall be considering some of these reasons in this article.
The Purpose Of A Business Exit Strategy
Now let us look into the purpose of having an exit plan for your business establishment. You would wonder why people needed a business exit plan when they started the business to be successful. A business exit strategy is how entrepreneurs and investors who have their money in startup companies transfer the ownership of their business to a third party. This is how investors get a return on the money they have invested in the business.
The Person That Needs an Exit Strategy
If you are seeking venture capital funding or angel investment for your business, then having a clear business exit strategy is imperative and essential. Whether you are a small business owner or big startup founder, it is essential to plan ahead and think about how you will transfer ownership of the business down the line. You can decide to outrightly sell the business or try to scale it and seek to be acquired. There is no time that is too early or too late to plan.
Different Types Of Business Exit Strategies For Business Owners
Family Succession or Legacy
Most times, business owners want to maintain their businesses in the family line. This means that they make plans to transfer the business to a child or another relative at a point in the business life span. One of the benefits of this type of exit strategy is that you can take time to groom the successor over time. Before you can adopt this type of exit strategy, ensure the successor is capable of handling the stress and volatilities that come with business ownership. Maintaining business ownership within the family line is indeed the best way to preserve your name in the business. It is also essential that you ensure you are handing over to the best and most suited individual for the job.
Acquisitions and Mergers
In this type of business exit strategy, your business, company, or startup is either purposed by or merges with another company that has similar goals with your establishment. Depending on the company that you merge with r sell to, it will determine the flexibility in terms of your involvement with the business, or the freedom to walk away. The major benefit of this approach is that it gives you the ability to negotiate the price of the sell while selling to the public through IPO would value your company relative to the industry.
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The processes involved here can take quite a long time to conclude, and that is if it happens at all. According to an estimate by BizBuySell, only 20% of businesses listed for sale actually get bought. So, you need to have a plan B if your dream is to merge or get acquired by another company.
Management or Employee Buyout
In this type of exit strategy, the people who already work for you want to own it as well. The major benefit here is that it could translate to a smoother transition and increased loyalty to your business legacy. Also, your former employees already understand and know you so well that they would allow for more flexibility in terms of your involvement. They may even want to keep you as a business mentor or advisor.
Sell your stake to a partner or investor
Another way to plan your business exit strategy is to sell your stake to an investor or business partner. If you are not the sole owner of your company or startup, it is possible to sell your stake to a business partner or an investor. Depending on the buyer, the process can be seamless and business-as-usual.
- Initial public offering (IPO)
Here, you can sell your business to the general public. There are certain business conditions that must be met before an IPO can be possible. It is not every business establishment or startup that can take part in an initial public offering. Your business might be doing very well in the market, but the industry doesn’t appeal to the public in such ways that excite stock buyers. Such a condition can devalue your company. You also need to know that IPOs are very rare and out of the millions of businesses in the USA, for example, only about 7,000 are public.
This is the final bus stop for any business. At this point, you have decided to close down your business and sell all the accrued assets. You shouldn’t see this as a defeat but rather the end of a chapter in your life as an entrepreneur. Should you decide to go this line, ensure to use the money realized to pay off any debts and payout your business stakeholders.
There is no entrepreneur or business owner that would want to file for bankruptcy protection, but it could be the best option if something goes wrong in the business. You may have your assets seized and very disturbing credits, but you will be relieved of debts and the burden of the business. Bankruptcy shouldn’t be seen as the worst in business; entrepreneurs can always re-strategize and re-launch into the business space with a better plan in mind. You can also read our previous article on how to avoid bankruptcy in business.
It is very important that you plan your business exit strategy from the onset so that you won’t be taken unawares. You can always seek the advice of a strategic business advisor for some guidance in your exit strategy execution, especially when the success of the exit is intertwined with achieving certain financial milestones in the process.
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