9 Business Exit Strategy Plans
- Become a lifestyle entrepreneur
- Pass the business along to a family member
- Find an acquirer
- Pursue an “acquihire”
- Have existing managers buy you out
- Sell your stake to a partner/investor
- Plan an initial public offering (IPO)
- Liquidate the business
- File for bankruptcy
As a business owner, you should always be thinking about your next move. In some cases, that’s your business exit strategy. Even if it’s technically your last move, an exit strategy for small business in particular is something you should keep in mind.
What will become of your business once you’re no longer involved, and how will you come out on top? There are various options for a small business owner when they are ready to exit—and many reasons for that exit.
This guide covers the best way to decide on a business exit strategy, including the many ways you can successfully move on or transition from your business.
What Is a Business Exit Strategy?
A business exit strategy is simply a plan for what will happen when you want to leave your business. It describes and outlines the form that the transition will take. Just like you have a business plan to guide your business throughout its life, you should have one that guides it to a conclusion.
Your business exit strategy doesn’t have to mean disaster or failure, or even imminent action—in fact, many business owners start their business with the express purpose of exiting after a certain number of years. It doesn’t mean they are less committed entrepreneurs. It just means they a have a plan in place.
Reasons for Exiting
There are many reasons to want to plan a business exit strategy. They include a planned exit, retirement, health problems, change of interests, an unexpected offer, a new and potentially more lucrative business venture, needing to raise money, or wanting to spend more time with family or take care of a loved one.
Leaving at the right time for you can often be the best decision for your business in the long run. No business is better off with a leader who can’t or doesn’t want to invest the time and effort to run it.
The Best Kind of Business Exit Strategy
The best kind of business exit strategy is the one that’s right for you and your business—and, perhaps just as importantly, is planned well in advance. When you’re just starting out as a business owner, it’s easy to think only of your business’s growth and future success. But it’s important to be pragmatic from the very start.
Exit strategies are not about planning for the worst. They are how you turn a good situation into a great one, by easing you out of doing business at an optimal time in your life. If you’ve only begun to think about your exit strategy when your business is in trouble, you’ll have a hard time positioning yourself for a soft landing.
This thinking makes it so you can focus on efforts that will eventually lead to the appropriate ends you want for your business.
Important Questions to Ask for Your Business Exit Strategy
Do you want to stay involved in the business forever?
When you’re just starting your business, this question might seem almost offensive. Yet it’s important to be realistic when creating your business strategy exit plan. Even if you spend your entire career owning the same business, most people eventually plan to retire at a certain age. Have you set up your business to make that a possibility down the line?
Maybe you know that you can only withstand business ownership for up to 10 years. In your eyes, what would you ideally like to happen at that point? Would you still want to be involved in the business even if you weren’t the owner?
These are important questions to answer for yourself in order to make the appropriate plans. It might even be a good idea to revisit how you feel about these questions year over year, as your life and plans evolve.
What are your financial goals?
This, of course, is different for everyone. As much as you might love the concept of your business or the good it’s doing the world, almost every entrepreneur has financial needs and goals playing into their business plans (unfortunately, almost 70% of entrepreneurs don’t regularly save for retirement). Whatever your goals may be, this question will greatly play into your exit strategy outcome.
How do you plan for an exit?
Many business owners work with consultants or professionals to help them make the best decisions, such as a business accountant or lawyer. It’s also helpful to ask yourself the above two questions first when planning an exit strategy for small business.
John Leonotti over at QuickBooks lays out the following advice: “The planning starts with determining your personal and business goals, and then assessing your mental and financial readiness. After that, you need to identify the exit options that are most aligned with your goals and readiness.”
At that point, you need to attend to “the executable items, such as taxes, deal structure,” and so on. You also need to understand the full value of your company to understand what your options might be.
In short, it’s all about crystallizing your goals to make the best decision for your business at the appropriate time of exit.
If your exit is in the immediate future, you need to choose one plan and stick with it. But if you have the time to plan ahead, it’s a good idea to set yourself up for multiple options. Fortunately, you’ve got numerous exit strategy options to choose from when thinking about the future of your business.
Let’s review some business exit strategy examples:
Different Types of Exit Strategies for Small Business
- Lifestyle entrepreneur: Some may tout this method, but it’s not exactly a business exit strategy. Rather, it’s a way to reframe how you treat your business if you have certain financial goals. It means you pay yourself really well as the business owner, rather than investing more money in growing your business.
Consider this if you’re weary from the risks associated with trying to expand a business. This only works if you’re in a stable market with a good revenue stream, and it ultimately spells a plateau in business growth. Make sure your investors or other partners are fine with doing this. If it works out, it could mean more autonomy and predictability.
- Legacy: Many entrepreneurs want to keep their business in the family long term, and that means making plans for transitioning the company to a child or another relative at a certain point. This may seem attractive because you can groom successors over time—just make sure your family relationships can handle the volatility and stress of business ownership.
Although keeping the business in the family may seem like the best way to preserve your name in the business, it’s important to be practical about who is really the best person for the job of running your business.
- Mergers and acquisitions: This means your company either is purchased by, or merges with, a company with similar or aligned goals to your company. Depending on who you merge/sell with, it could mean flexibility in terms of your involvement, or the freedom to walk away. Perhaps the best thing about this exit strategy is the ability to negotiate the price of the sell, whereas selling to the public (an IPO) would value your company relative to the industry.
This process can take a long time, however, if it happens at all. BizBuySell estimates that only 20% of businesses listed for sale actually get bought. If it’s your dream to merge or get acquired, you might want to have a Plan B just in case.
- “Acquihire”: This is a special kind of business acquisition or exit strategy in which a company buys out a business simply for the sake of acquiring its talented or skilled employees. Although this means your “legacy” may not endure in name, it will help take care of your employees. Be sure to negotiate with your employees’ needs in mind: They came to work for you, not another business.
- Management/employee buyout: It’s possible that people who already work for you, who know how to manage the business, may want to own it as well. This could result in a smoother transition and increase loyalty to your business’s legacy. And because they probably know you so well, they may allow for flexibility in terms of your involvement—perhaps they’ll want to keep you on as a mentor or advisor.
Just be aware that changes in management always come with some growing pains, and plan for that with existing clients.
- Sell your stake to a partner/investor: If you aren’t the sole proprietor, 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.
- Initial public offering (IPO): You can also sell your business to the public. This certainly isn’t for everyone—business conditions need to be just right for this option to be possible. Even if your business is booming, your industry may not appeal to the public in a way that gets stock buyers excited, thus devaluing your company. Not to mention the fact that IPOs are very rare: Only about 7,000 out of millions of companies in the U.S. are public. If it’s possible for you and the conditions are right, an IPO can be very lucrative.
The catch? You’ll be under intense scrutiny from stockholders and analysts—and that could mean more stress than you asked for.
- Liquidate: As a business exit strategy goes, this one is the most final. Close your business and sell your assets. This doesn’t have to mean defeat—just an ending to a chapter. If you decide this is what you want to do, just remember that you’ll need to use the cash to pay off any debts and payout any shareholders.
The upside of this exit strategy? You’ll never have to worry about the business again, free of the chains involved in trying to preserve a legacy. However, it’s likely you won’t get the most bang for your buck—explore other options for keeping the business going, especially if you have clients or customers who rely on your service. They might have solutions (e.g., buying power) you hadn’t considered
- Bankruptcy: No one wants to file for bankruptcy protection, but this could be your last resort if something goes wrong (or you never managed to plan one of the solid exit strategies listed above). In fact, the writing may be on the wall for bankruptcy even before you’re ready. It’s not the end of the world. Though you may have assets seized and very troublesome credit, you’ll be relieved of debts and the burden of the business if things get really bad.
If the option of bankruptcy does become a reality for you, be sure to understand exactly what happens when you file for Chapter 7, 11, or 13.
Even while you’re starting your business, you should at least think about your ideal exit strategy. Hopefully, this article gets you started planning your exit strategy for small business.
The post The Best Business Exit Strategy for You: 9 Ways to Move On appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/exit-strategy-for-small-business/
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