A business exit strategy is a plan for what will happen when you want to leave your business.
A lot of people think of an exit strategy as a plan to guard against disaster or something that has to be carried out right away after its conception. But this usually isn’t the case. Instead, it’s a plan you put in place to work out how you’re going to enter the new chapter of your life without hindrance. It’s your way of ensuring that the future of the business is guaranteed even without you if that’s what you want.
What do you need to consider when exit planning?
While a lot of exit planning is to do with how you will leave the business, you’ll also want to consider other factors that are involved in the process. For instance, you need to think about whether you want to profit from your exit by making some money. If you do, is this enough of a reason to go for one strategy over another?
You also need to consider what will happen to the business after you leave, whether a family member keeps your legacy alive, or another business acquires yours
Then there’s the length of time your exit will take. People usually like to have transition periods, but you need to think about that carefully. Remember, though, that there is no right or wrong way to leave your business. There are only options that may work better or worse for you than others, depending on your situation.
Types of Exit Strategies
Continuing the Family Legacy
Keeping the business in the family is an attractive idea for a lot of entrepreneurs, as it allows them to prepare their potential successor over time and gives them the exciting prospect of carrying on their legacy.
Although keeping the business in the family may be one of the best ways to preserve your name in the business, you need to be practical about who is really the best person for running things.
You will need to make sure your potential successor is up to the job if, as is safe to assume, you want the business to endure and thrive. You need to be objective in your assessment of your successor, even if they’re a close family member. Again, have a backup plan, whether that’s another family member or someone from outside the business.
Mergers & Acquisitions
Through a merger or acquisition exit strategy, your business is either purchased by or merges with a company that ideally has similar or aligned goals to your business.
Some buyers will be looking to make a financial merger or acquisition in the sense they are looking for a business that can generate a large amount of cash in a short period of time on its own after an external cash injection. Ultimately, these buyers are looking for a quick return on investment. Other buyers are more strategic in their acquisition, targeting a business that is their competitor, supplier or customer to improve their standing in the market.
Perhaps the best thing about this exit strategy is the ability to negotiate the price, whereas selling to the public through an initial public offering would fix the value of your business to whichever industry you’re in.
Selling your stake to a partner or investor
If you aren’t the sole proprietor of your business, it’s possible to sell off just your stake to a business partner or other investor. This can be a relatively ‘business-as-usual’ exit strategy, depending on the buyer, meaning your exit should be hassle-free.
Your legacy will remain intact and for the most part, your business should continue to function as usual, ensuring its survival without you in the short term. You’ll be able to exit the business fully and earn a profit on the sale of your share.
Management or employee buyout
An employee or management buyout sees a business owner sell their business to people who already work for them and are excited about becoming business owners themselves. It’s a great exit strategy for people who want to pass their business into capable hands while turning a profit from the sale of a business.
This approach takes considerable planning, however, given the fact that management changes are difficult to implement and may have a negative impact on your existing clients.
As exit strategy plans go, liquidation should be the most final. If you liquidate your business, you’ll be closing the entire operation and selling its assets. It’ll no longer exist, and a chapter of your professional life will essentially end for good. If you decide this is the best way forward, you’ll need to use the cash you earn through the process to pay off any debts and pay out any shareholders.
Liquidation affects your employees, as well as the clients and customers who rely on your service. Compared to other strategies, it’s one of the most efficient methods, but you’re unlikely to get the biggest return on investment.
If you’d like to discuss your exit strategy options, get in touch! Our experts are here to help you decide which method of exiting your business works best for you.