How to Create an Exit Strategy for Your Small Business
Choosing an exit strategy for your business might not seem like an obvious step when you’re just getting started, however planning ahead is an important part of building a business. An exit strategy is a plan for how you will eventually leave the business. It also includes details on what will happen to the enterprise after you have left.
- Liquidation
Liquidation is the process of closing a business and selling off its assets or redistributing them to creditors and shareholders. There are two main ways to do this:
- Close and Sell Assets as Soon as Possible
- Liquidating Your Business over Time
- Sell the Business to Someone You Know
You may decide to sell the business to someone whom you’re familiar with, whether that’s an existing partner, a manager or employee, a customer, a friend, or a family member. Commonly, during a seller financing agreement, the buyer is able to pay off the business gradually. This allows the seller to maintain an income while the buyer begins to run the business without making a large initial investment. The seller can also act as a mentor during the transition, which helps to make the process smoother for everyone.
Be aware that valuation, business transfer, and estate planning issues can be complex when selling to a family member. You’ll want to involve attorneys, accountants, and family successors when planning the transition.
- Sell the Business in the Open Market
Buying an already established business can be an attractive option for entrepreneurs. This is because it’s less risky than starting a new enterprise, and seller financing makes the purchase easier to fund than it would be if you were financing a start-up. Buyers also benefit from assuming a business’ existing systems, its sales stream and cash flow, established client base, and brand reputation.
- Sell to Another Business
In some cases, a competitor or similar business may want to acquire your company. Your business could be a strategic fit for their enterprise or a competitor may want to eliminate the competition. This is a good option for someone who wants to continue work in their chosen industry but with less responsibility. Generally during acquisitions, the business owner is offered a position with the new company. If this is the case, make sure you’re comfortable with the role and fully understand the dynamics and culture of the new workplace. You’ll want to work with an attorney when structuring the acquisition agreement.
- An IPO (Initial Public Offering)
An initial public offering usually refers to when a business first sells its shares of stock to the public. Companies typically go through this process to raise additional capital. Going public is a big step for any business—it’s a long, expensive process, and afterward the company is subject to public reporting requirements.
Do you need help? Do you want to create an exit strategy for your small business?
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