Are you a business owner planning to leave your business during the next few years?
The process of exiting any business can be a complicated one – involving legal, financial and emotional considerations. At this point, it is important to be aware of the most common exit strategies for leaving your business so that you can make an informed decision about which route is best for you and your company’s future ventures.
Here, we’ll discuss some of these options – from selling part or all of the company to handing leadership duties over to someone else – and discuss the pros and cons of each.
However, before we do so, I want to share a little story to emphasize the importance of learning the best exit strategy for you. Hywel Parry of Lime Tree Vets went to seek expert advice from outside of his veterinary industry, he needed an outside perspective on his business challenges.
His vision included making the ownership and management of the company fulfilling on all levels: personally, professionally, and financially. However, he was no longer certain that he would realize this vision in his capacity as the practice’s owner or whether it would be wiser to sell it.
He spoke with an expert about his problem. They advised him to weigh his choices and speak with a broker to learn more about the process of selling his practice. His departure strategy preparation started with this.
The expert provided a lot of support for the choice, especially as offers started to come in, according to Hywel. He was crucial in that regard because he would give me neutral advice because selling a business is sensitive, and there weren’t many people I could talk to about it.
In addition, Hywel was motivated to sell his company considerably sooner than he anticipated because to the support that the expert provided. He had a ten-year plan in the beginning, but with their assistance, he sold his company in only half the time.
Wouldn’t you want the same thing to happen to your business? That being said, your financial, personal, and business objectives will ultimately dictate the exit strategy you select. In the end, there isn’t necessarily a right or wrong way to close your business, but there are alternatives that, depending on your unique situation, may be more beneficial for you. So let’s examine these eight exit strategies, outlining what they would entail and the benefits and drawbacks of each option:
8 Business Exit Strategy Techniques
1. Transfer the company to a family member
2. Investigate merging or being acquired
3. Take the “acquihire” route
4. Offer to be bought out by current managers
5. Sell your share to a partner or investment
6. Create a plan for Initial Public Offering (IPO)
7. Put the company up for sale
8. Declare bankruptcy
1.Transfer the company to a family member
Many business owners aim to pass down their firm to their children or other relatives at some point because they want to maintain it in the family for the future. Because you can develop successors over time, this may seem like an appealing company exit option. However, you need to ensure that your family connections can withstand the stress and uncertainty of business ownership.
It may appear that passing the business down through the generations is the best approach to protect your reputation, but it’s crucial to think strategically about who is the ideal candidate to lead your company.
PROS:
- You have the option of selecting and preparing the individual you wish to carry on your firm when you leave.
- You don’t have to leave your company entirely; you might be able to continue in some capacity as an ongoing advisor or in a transitional one.
CONS:
- You might not be able to identify a family member who is willing or qualified to take over the company.
- Your family may experience significant emotional, monetary, and overall stress as a result of this process.
- It’s possible that the family member you select won’t have the support of co-workers, business partners, or investors.
2. Investigate merging or being acquired
A merger or acquisition is a business exit strategy in which your company either buys or merges with another business that has objectives that are comparable to or compatible with yours. This approach could provide flexibility in terms of your involvement or the option to walk away depending on who you merge with or sell your business to.
While selling to the public (an IPO) would value your firm about the industry, this exit plan allows you to negotiate the price of the sale.
However, if this procedure does take place at all, it may take a while. If merging or being acquired is your ambition, you may need to prepare a backup plan.
PROS:
- You can bargain over the conditions, cost, and other specifics of your merger or acquisition.
- If you wish to, you can completely stop doing business.
CONS:
- This approach could be expensive, time-consuming, and even unsuccessful.
- Your company might stop existing as it once did, which could have a number of negative effects.
3. Take the “acquihire” route
This exit strategy business plan differs from a traditional acquisition in that a company buys out your company solely in order to acquire its talented or skilled people.
Even while your “legacy” may not technically live on because of this, it will nonetheless benefit your workers. In this situation, you would need to bargain terms keeping in mind the particular requirements of your employees: They came to work for you, not some other company, after all.
PROS:
- Negotiating the conditions of this unique acquisition will provide you the opportunity to secure financial gain for yourself and a bright future for your staff.
- You won’t need to be concerned about any unfinished business or obligations because you’ll be making a clean break from your company.
CONS:
- This process can be expensive, time-consuming, and challenging, as we said with traditional mergers or acquisitions. Additionally, you might have trouble finding a buyer open to an “acquihire.”
- And once more, you’ll be losing the history of the company you founded.
4. Offer to be bought out by current managers
Even though many of these strategies may be challenging to prepare for in advance, it’s possible that when you’re ready to sell your firm, the people you currently employ may be interested in buying it from you.
This exit strategy for your company may produce a smoother transition and boost adherence to the legacy of your company because these people are familiar with you and the organization and have management experience.
Furthermore, because these people are already associated with your company and are likely to be familiar with you, they may be more flexible regarding your level of involvement; perhaps they’ll want to keep you on as a mentor or advisor.
PROS:
- You can transfer your business to a person with organizational experience whom you ideally know and trust.
- You should be able to profit from the deal as you are still selling the company.
- The employees who are purchasing your business should be more likely to make something work if you wish to be involved in some way.
- The legacy of your company will be somewhat preserved.
CONS:
- You might not be able to track down an employee or management who wants to buy your business.
- These management changes could be challenging to put into practice and might have a bad impact on current clients.
5. Sell your share to a partner or investment
It is feasible to sell simply your ownership interest to a business partner or other investor if you are not the company’s sole proprietor. Depending on the buyer, this may be a fairly “business as usual” departure strategy.
PROS:
- Your company will go on with its legacy intact, and operations should mostly go on as usual.
- You can completely shut down your company and, ideally, make money when you sell your part.
- You’re dealing with a buyer you already know and have worked with, so the procedure ought to be considerably simpler.
CONS:
- It’s possible that no investor or buyer will be willing to buy your stake.
- It could be more challenging to continue working on your company in any form.
- There are a number of potential issues that could arise if the process becomes acrimonious between you and your partner or investor.
6. Plan an Initial Public Offering (IPO)
Many business owners want to one day sell their company for a sizable profit. The business environment must be just right for this choice to be viable, therefore it’s not for everyone when it comes to arranging small business exit strategies.
Even if your firm is growing, your industry’s attraction to consumers might not thrill stock buyers, depreciating your business. Not to mention that IPOs are quite uncommon: In contrast to the late 1990s, when there were roughly 8,000 domestic public firms in the U.S. (out of millions), there are now only about 3,600. [2]
Having said that, an IPO can be quite profitable if it’s feasible for you and the circumstances are favorable.
PROS:
- This is most likely the business exit strategy that will result in you making a sizable profit, out of all those available.
CONS:
- Considering the conditions, time, money, and effort required, this is definitely one of the trickiest exit strategies.
- Going public also entails a lot of regulations (such business valuation) that must be satisfied and procedures that must be finished, as well as rigorous scrutiny from investors and analysts.
- Success in an IPO is extremely rare and challenging, particularly for many small- to medium-sized enterprises.
6. Put the company up for sale
This is the most comprehensive exit strategy business plan available. By liquidating, you would close your company and sell your assets. Having said that, liquidation need not imply defeat—merely the conclusion of a book.
Just keep in mind that if you decide to go ahead with it, you’ll need to utilize the money you make to settle any debts and distribute any remaining funds to shareholders. Additionally, keep in mind how this decision can impact your staff and any clients or customers that depend on your service.
PROS:
- Without the constraints associated with attempting to maintain a legacy, you won’t have to worry about the company ever again.
- This is often one of the simplest and quickest exit alternatives for a firm.
CONS:
- With this choice, your investment probably won’t yield the highest return.
- Relationships with any party involved in the regular or general operations of your company, including partners, clients, customers, and employees, may end as a result of this strategy.
8. Declare bankruptcy
In terms of creating an exit strategy for a small business, the last way is the one you can’t truly prepare for. In the end, nobody likes to declare bankruptcy, but if something goes wrong, this may be your only option (or you never managed to plan with any of the other exit strategies listed above).
In fact, it can happen that you must file for bankruptcy before you’re ready, but given how businesses operate, it’s not the end of the world. If things get terrible, you may have assets confiscated and credit that needs to be repaired, but you will no longer be responsible for paying debts or carrying the burden of the company.
Unfortunately, beginning and running a business comes with many hazards, one of which is the potential for bankruptcy.
PROS:
- You will be released from your company’s obligations and debts as a result of this formal action.
- You will be able to leave your business behind and begin to repair your credit.
CONS:
- When you declare bankruptcy, you might not be able to eliminate all of your debts.
- A bankruptcy filing will probably have an impact on your future capacity to obtain credit.
- Relationships with clients, customers, and anybody else involved in the operation of your organization are likely to end prematurely as a result of this procedure.
The Bottom Line
There is no one-size-fits-all exit strategy for business, as is the case with many other aspects of running a corporation. The exit strategy that is best for you and your company will ultimately depend on a variety of variables and may change or develop as you move through the stages of the business’ lifetime.
However, planning ahead is still the smartest thing you can do when creating an exit strategy company plan. Even before you open for business, you should think about your exit strategy in case and when the time comes. You’re more likely to succeed when it comes time to part ways if you’re proactive in considering this process—what it might look like, how it might be carried out, and what the results will be.
At Eminae, we understand that exiting a business can be a complex and challenging process, which is why we have a team of experienced advisors ready to assist. Our advisors have a wealth of knowledge and expertise, and they are dedicated to helping CEO’s navigate the exit process with confidence. With our guidance, you can rest assured that your business will be set on the path to a successful and profitable exit. Don’t miss this opportunity to take your business to the next level.
