After years of back-breaking, carpal-tunnel-syndrome-inducing hard work, you are finally ready to move on from the business you started. Hopefully you’ve already been planning the best exit strategy for years, but if not, it’s not too late. You can learn what factors are important to buyers and increase the value of your business by following these steps.
What is the best business exit strategy? That is like asking what the best dessert is or is the weather hot or cold? As with choosing the best dessert, the best exit strategy is dependent on your unique situation. One of the main factors determining your exit plan can be whether or not your business is currently profitable.
Exit Strategy #1: Keep it in the family
When thinking about an exit plan, many business owners have to consider the impact that the sale will have on their families. If there is a child or other relative that has been interested in or even worked for your business? Why not consider keeping your legacy alive through them.
The benefit of this option is that you will know and hopefully like the new owner and be able to mentor them if you so choose. You could also retain some shares in the business and not completely lose control over what happens when you’re gone. This will hopefully also ensure that you are left with recurring income well into the future.
If you’ve ever watched TV shows from Dallas back in the day or the more recent Kevin Costner hit, Yellowstone, you will know that a family business can have its challenges. Especially if your exit strategy involves multiple children and some want to continue the business while others are just looking for the cash. If this option turns into a more of a family exit strategy, it might be best to consider one of the other options below.
Exit Strategy #2: Keep it in the business
The next business exit strategy option is called a Management or Employee Buyout. Maybe you have a manager that has been with the company since its early years and knows the business backwards. They might want to take the company over and run it themselves.
The benefit of this exit plan is that again, you will know the buyer and hopefully their long-term intentions (if that is important to you). They’re probably aware of the value of the business so you should get a fair price.
Knowing the buyer can also be a negative however and the selling price negotiations could strain existing relationships. You may well find that they also struggle to raise the capital to purchase the business. This is obviously presuming that you have someone who is not only suitable, but eager to take the business over.
Are you ready to sell?
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You may have a great business on your hands but are you really ready to move on, or should you keep it a little longer?
Our online quiz evaluates your readiness to exit, taking into account both your professional and personal factors.
Exit Strategy #3: Sell it to another business
If there is no one in your household or business that is willing to take it on, the next business exit strategy is to either be acquired by or merged with another business. It might be that a competitor wants to expand its operations or a larger company wants to incorporate your offering into its range of products and services. Regardless of the reason, selling to another company can be a profitable exit strategy.
The pros of this option are that an established company is more likely to have access to reasonable financing for the purchase. Depending on the negotiations you might need to stay on in some capacity for a while. This is a positive if you struggle to let go and can ease yourself out of the business over time. Alternatively you can negotiate to cut ties completely which is easier than mentoring a family member or manager.
The cons will be that you might not like what happens to your business after the acquisition. If you are a smaller business being bought out by a larger company you might also find your negotiating power is drastically diminished.
Exit Strategy #4: Sell it to the public
This is an unlikely exit option for a smaller business as there are a number of requirements that need to be met, but it’s worth mentioning.
An IPO (Initial Public Offering) is when a company decides to sell shares to the public that can then be traded through a stock market. This can be a very profitable option especially if there is perceived value in your company. Besides that pro, there are a number of cons including the difficulty of listing and the stringent requirements and scrutiny you will get from analysts and potential shareholders.
You may also struggle to actually exit the business in the short-term as you may be seen as an integral factor in the business’ inherent value. Shareholders wouldn’t be too keen to invest in a business knowing that the CEO is on the way out. You’d need to have a clear succession plan.
Is your business really worth it?
Take the Value Builder Assessment Quiz
Is your business really worth what you think it is? Will prospects see it that way?
Before exiting, take the time to find out how you can get the most value out of your business.
Value Builder clients who have improved their score to 90 or greater – by following this system – are receiving offers of 7.1 times pretax profit on average. Take the quiz to get your value score today!
Exit Strategy #5: Sell your team to another company
This option might sound strange as an exit plan, but there is actually a term for it, Acqui-hire. This is when a company wants to purchase your business for the amazing team you have developed. They do this because they are short of talent and it can be a simple way to get new employees and their skills, ideas and contacts. The company can also pick and choose which employees they want to retain.
Depending on the financial state of your business, this might not be the most profitable route, but on the plus side you know that your employees will be taken care of unlike the two options below.
Exit Strategy #6: Sell everything
If your business hasn’t been performing well you might be forced to use liquidation as an exit strategy. Liquidation is the process of selling off everything the company owns. Bear in mind that if the company owes creditors, they will need to be paid first, but after that you at least retain whatever capital is leftover.
The positive of this approach is that you have a clean break from the company without having to worry about what the new owners plans are. The negative is obviously that you won’t make as much money (or possibly any money) as the other options above.
Exit Strategy #7: Sell your pride
The last option is not really an option at all. If you are forced to declare bankruptcy, it means that you can no longer pay your business’s debts. All your business’s assets will be sold off to pay what debts it can. While this has the positive impact of absolving you of your company’s debts and the associated stress, it does come with serious consequences to your future access to credit. It also might not absolve you of all of your debts and will definitely impact your business relationships.
Build value before you sell
Speak to an experienced Value Builder expert before you consider exiting your business. We can help you determine your readiness to exit, advise on the best exit strategy to adopt and coach you on how to build significant value into your business, whether you end up selling it or not. Click to take a look at our services.
FAQs
The best exit strategy is the one that works best for you. As with all plans, you need to have a goal of what you would like to achieve and the best way to get there. Goals could be based on retirement, financial, wellness or family so consider which exit plan will meet your needs. Get started with a our PREScore assessment to see how ready you are to exit.
A good startup exit is one in which you get your desired ROI. If you’re not looking for long-term employment then being bought out by a larger company or listing publicly would be a satisfying exit strategy. Also be aware of restraint of trade agreements that could restrict you from starting a new business.
A viable exit strategy is one that works for you. Whether you pass your business on to your family; sell to your employees, another company or the public; or have to liquidate or declare bankruptcy, they are all viable options depending on your situation. Chat with our business value advisors to help assess the right option for you.
Entrepreneurs that are not afraid of starting new businesses may have a future sale as part of their business plan. Creating value for potential buyers is what should be their aim whether it is through intellectual property or unique product offering or first mover advantage.
To prepare an exit strategy it is best to do so as far in advance as possible. Be aware of all your options and seek professional advice. Make sure you have all your financial statements up to date as well.
An Acquisition exit strategy is where you aim to get a company to purchase your business. This can be either to expand its business operations, enter into a new market or with the purpose of removing your business as a future competitor.
