Every entrepreneur should have an exit plan as they create their business plan. It may seem counterintuitive to think about exiting the business at the start, but not doing so robs you of the chance to put a clear path of ownership in place. It also means that you do not have a plan on how to recoup your investment. So, what strategies are available to entrepreneurs who need an exit?
Liquidation
Liquidation is a very common exit strategy for entrepreneurs who do not want to sell their business or want it to be otherwise acquired. It is also a common option for failing businesses. In this strategy, the owner does not have to make any difficult choices as they start unwinding the business. They use up the incoming revenue instead of reinvesting it and find a way for their employees to move on.
Any cash earned during this process, most of which will come from the sale of assets, is used to pay investors and shareholders if any, and any debts remaining. Any cash that remains after this process goes to the owner.
This process is much faster than most others and often simpler to execute.
Mergers and Acquisitions
Mergers and acquisitions are two different steps that are often mentioned together. In a merger, two or more companies combine to form a single company. Mergers can get very complicated and typically involve a lot of legal processes, new contracts, and restructuring.
An acquisition, on the other hand, involves a business being consumed by another so that the first ceases to exist. The owner is not involved after the initial negotiations and subsequent sale. They are required to walk away after the sale is complete. For example, the buyer will take care of any debt the company holds, and they can deduct this amount from the sale price depending on the negotiations.
Third-party Sale
Third-party sales are a great way to cash out so you can pay your investors and lenders, pay yourself and be able to take some time away from the business.
While you can find an investor to sell the business yourself, it is always best to get help from professionals. These professionals will do any due diligence, find a buyer, and do all the other heavy lifting so you can concentrate on what you need to do during the sale process.
The partner will also ensure that you get the best price and ensure the business goes to someone who will take care of the business as well as you did. Talk to professionals with vast experience in selling startups when you’re ready to sell to ensure a convenient and efficient exit.
Make it a Source of Revenue
If your business exists in a strong market and has strong cash flow, you can opt not to sell but instead use the business as a source of revenue. To do so, you need to pay your investors and then find someone with the same vision as you who will keep running the business profitably.
By doing this, you retain the ownership of the business, but are not involved in its day-to-day operations. You will receive an annuity, and also know that you might have to inject money into the business from time to time to keep it going.
Management Buyout
A management buyout happens when a new generation of business leaders takes over from the primary business owner. This strategy requires a lot of succession planning to ensure everything goes right after the transfer.
A management buyout can be complicated by the interested employee’s inability to raise the amount asked for.
These are some of the ways a business owner can exit the business. They all work differently, and it is up to the business owner to find what works for them. Also, it is better to find professional help that will ensure everything is done right and goes smoothly.