A business exit strategy is an important plan that every business owner should have in order to manage their finances better when they have to leave the business in the future. Many reasons that may lead to ending a business and an exit strategy ensures that a business owner has a way to reduce or liquidate their stake in a business. Along with making a profit, this also involves avoiding a significant loss of investments. However, most entrepreneurs overlook this and wait until it is too late to start planning the future of their business.
What is a Business Exit Strategy?
An exit strategy is a plan implemented when a business is looking to transition into a new phase involving re-defining a business’s long-term goals. This also includes leadership, sustaining financial goals, or pivoting for challenges. This can happen when a business owner chooses to sell their company or a percentage of the company to other entrepreneurs and investors.
A well-prepared exit strategy plan must consider the company’s stakeholders and operations. Including all challenges as it details out all the necessary steps that must be taken in order to close a business successfully.
Whether a business is struggling or doing well, an exit strategy should create a smooth landing for future business goals. This should also outline growth by minimizing all the losses and maximizing profits from the previous business.
Types of Business Exit Strategies
There are several types of business exit strategies. Let’s discover some of the most common methods to consider.
Initial Public Offering (IPO): A private company may choose to go public by selling its shares to the mass public. It is a good strategy for startups and small growing companies looking to expand without necessarily selling their companies.
Mergers and Acquisitions: When a larger corporation acquires another relatively smaller or similar business at a large profit margin. You should prepare to achieve a high business valuation to attract good buyers.
Selling Your Control: When you are an investor owning a part of the business, selling your part of control is a good exit strategy. You can either sell it to your business partner or another third-party investor. The same can be applied for a family business, by preparing a succession plan for who and how they will take control of your part of the company.
Buyouts: This happens when the management team buys the business from the owner. The business transition is always smooth because the management team already has an understanding of a buyout, where a member or management team buys the business from the business owner.
Liquidation: For a business that is no longer profitable, choosing a liquidation exit strategy allows you to sell your business assets and real estate to pay off any debts from lenders and stakeholders.
Bankruptcy: Although not a desirable strategy, when you declare bankruptcy, you will not be responsible for any debts your business has accrued. However, your assets are seized to make up for those debts. It is a strategy that should be adopted when absolutely necessary.
Choosing the Best Business Exit Strategy
You must consider several factors while planning a business exit strategy, such as business type, size, and financial goals to create a plan that will work for your needs. Remember, what works for another business owner, may not necessarily work for you. No matter what plan you choose to establish, one thing remains true; business exit strategy planning is essential!
Here are some of the things you can do to start planning your own business exit strategy.
- Be in control of your finances both personally and professionally. Have accurate information about your financial status, and your assets, check if you have any debts, and be diligent about paying them off. Understand how your business performs in real-time to get the best deal out of your exit strategy.
- Evaluate all your options to choose what will be the best one for your business/financial goals. Seek a professional’s help if needed to ensure you have the right plan.
- Reach out to all the stakeholders of your business if you do not have the sole ownership. Make sure you are prepared with all the necessary information to support your plans.
- When it is time to implement your exit strategy, inform your employees and customers. Empathize with them, share your plans and how they will affect them. You can also present them with alternative options if necessary.
Plan Your Business Exit Strategy with Saddock Advisory
Business exit strategy planning should be done at the beginning of your business operations even if you do not intend to sell anytime soon. Our financial experts at Saddock Advisory are ready to help you with your exit strategy planning! We will help you create the most profitable exit plan for your business that will support your future financial goals.
Contact us today.