By Jeff Swiggett
Most businesses don’t last forever – there comes a time when founders stop thinking about how to grow their business and instead begin to ask themselves how to sell it. There are many ways to liquidate a business, and each exit strategy comes with its own benefits for the owner.
Let’s take a look at how to determine the best exit strategy plan for your business.
Types of Exit Strategies for Investors and Business Owners
There are four main types of exit strategies to consider. While the strategies differ, they each provide entrepreneurs with the opportunity to sell their stake in the business to another investor or company.
1. Initial Public Offerings (IPOs)
IPOs were considered the gold standard for exit strategies until the dot-com bubble burst in 2000. However, they’ve recently come back in style thanks to a new round of Silicon Valley startups hoping to get rich while going public. IPOs can be a great option for some businesses as they allow owners to retain control over their ventures, command a financial reward for all of their hard work, and keep their business independent.
However, shareholders can be very demanding and the path to initial public offering is long and grueling. Consider that Snapchat, which went public in 2017, endured a six-year growth period to groom the business so it would attract shareholders. After launch, companies must continue to prove their worth by developing new products and attracting new users.
2. Mergers & Acquisitions
Mergers and acquisitions mean the business is either bought by a larger company or merges with a similar business. Both mergers and acquisitions can be win-win scenarios when the fit is right.
Mergers save money and resources as they extend the reach of companies, deliver profits, security, and value. On the other hand, acquisitions pay handsomely and deliver value to the buyer, who gets a fast revenue and productivity boost without having to develop organically. Acquisitions can be less stressful for business owners, because their company may be nurtured for growth and sheltered from negative press by the purchasing company.
3. Sell to a Private Individual
A private business sale can be a great way to cash out of a business while entrusting its future to someone whose vision aligns with yours. Look for a buyer who understands the industry and has the skills, interest, and background to maintain or scale the business.
After selling to a private individual, you may be able to guide your business forward by remaining on the board. This can be an ideal solution for the reluctant founder who knows it’s time to sell, but who is not ready to emotionally disengage from the company they worked so hard to build. Other founders like to pay off investors, take a paycheck themselves, and enjoy some much-needed time off to plan their next steps – whether it’s a long-awaited retirement or a new business venture.
4. Liquidate and Close the Business
Sometimes, business owners are simply ready to move on and want to exit the company as quickly as possible. Closing up shop and liquidating business assets allows for a quick exit when necessary.
Liquidation may be seen as a last resort, but it may be the right method if speed is desired due to a rough market, personal challenge, or other issue affecting the company or business owner.
How to Know When it’s Time for a Company Exit Strategy
Serial entrepreneurs tend to fall in love with new business ideas. These people are always coming up with unique products or starting new ventures. Serial entrepreneurs love the creative startup phase of the business but get bored with day-to-day operations and find themselves asking “how can I sell my business fast,” so they can start all over again. A good business opportunity elsewhere can also prompt hopes for a fast sale, so business owners can invest their profits in an opportunity that’s too good to pass up.
Other business owners and investors find themselves making the decision to sell because the company is not profitable, or they don’t have the right skill set to take it further. By selling, they can limit financial losses and give someone else a shot at growing the business.
Selling a profitable company may be the best position to be in because the sale will return a substantial profit for business owners and investors, regardless of the exit strategy chosen.
Age brings another set of considerations, as owners find themselves thinking about their next stage of life. Retirement is a natural time to transition out of the business, but an estimated 47 percent of small business owners have no business exit plan in place.
While it’s ideal to plan ahead by writing an exit strategy into the business plan, not every founder is prepared to sell the business when the time comes. If you believe it’s time to sell, get help with an exit strategy for investors or entrepreneurs from a company that has experience brokering sales and advising on exit strategy business plans. Consider getting help from a trusted mergers and acquisitions firm. The decision to sell your business is a big one, and you need people in your corner who can help you understand the options, your position, and the best way forward.
