You may have built yourself a great business, but there will come a time when you no longer want to continue doing it, either due to personal reasons or to adapt to changing economic conditions. This is an inevitable eventuality for any business and therefore it is wise to have an exit strategy in place to ensure that you can leave the business smoothly.
Here are some of the common exit strategies that entrepreneurs usually employ.
An IPO or initial public offering is a way to sell shares of stock of your privately owned business to the general public. This is a lucrative way of exiting a business, because it can bring in large amounts of cash within a short time. However, bear in mind that going the IPO route is rare for most companies. Out of millions of businesses in the US, only 222 companies went public in 2013. Not only that, the expenses of going public can even run into six or seven figures.
There aren’t many people who start a business with the aim to liquidate it someday, but liquidation is something that happens all the time. Businesses that are struggling often choose to liquidate their assets. When a business liquidates, the prices of all its inventories are marked down to ensure a quicker sale. Liquidation proceedings are first used to repay all creditors, and whatever is left over is divided among shareholders.
Merger or acquisition
It is the dream of many start-up companies to be acquired by one of the big boys in business. A merger or acquisition indicates that the business owner sells his controlling interest in the business to the buying company. The original owner may still be involved in the day-to-day operations, usually according to the terms that are decided during the merger or acquisition process. If you find a buying company for which your business provides critical capabilities, you may have found yourself a good acquirer. The bad side of acquisition is that the original owner may feel powerless in the face of business decisions of the new management, which he feels are not in the best interests of the company.
Sell to a friendly buyer
Friendly sales often happen in family businesses to pass on the operations from one family member to another. Interested parties may also include friends and acquaintances, or even employees and customers. If you sell your business to a friendly buyer, you go out with the satisfaction that the business will be run more or less in a way that is agreeable to you and does not seek to obliterate your legacy.
Lifestyle company exit
Most lifestyle businesses function to maximize the profit of the owner without any clear plan for future growth or expansion. This is a rather straightforward way to exit the business. You keep the business expenses low, and pocket all the profits rather than put it back to the business to help it grow. Such businesses are usually very small in scale, and the owner typically dissolves the company when it is no longer profitable to run it.
Whatever your preferred exit strategy is, it is a good idea to give it some serious thought early on in the venture. It will help you provide the right direction to the business.