Exit Strategies for Business Owners
Exit strategies are important for business owners to have in place. In the event that the business is no longer viable, the exit strategy can provide a plan for winding down the business in an orderly fashion. There are several different types of exit strategies that can be used, and each has its own advantages and disadvantages. The most common exit strategies are selling the business, going public, or merging with another company.
1. Merger
Two companies will unite into one through the process of merger. Mergers boost the value of your company, which is why investors want them.
You must still be a part of the company to complete the merger. You will become an owner or management of the new company as a result of the merger. It’s possible that the new amalgamated company will hire your staff. Another alternative is severing ties with your company instead of merging it.
Mergers can be divided as follows:
- Horizontal: Both companies are in the same field. Both businesses that are part of the same supply chain are considered vertical. The two enterprises have nothing in common, thus they’re referred to as a conglomerate.
- Market expansion: Although the companies provide the same items, they compete in distinct markets.
- Product complementation: The products of both companies complement each other nicely.
Make sure the new business is a good fit for your existing one before merging them. When you don’t take action and do not create a budget, you might wind up losing a lot of cash.
2. Acquisition
When a company buys another company, it’s known as an acquisition. You give up ownership of your company to the company that buys it from you when you use an acquisition exit strategy.
Acquisitions, on the other hand, may not always be the most successful exit strategy if you are not currently prepared to clean your hands of your company. You might be asked to sign a contract not to start or start a competing organization.
Friendly and hostile acquisitions are the two kinds of acquisitions. You welcome being part of an equity in case you have a friendly exchange. A hostile purchase, though, implies you’re not necessarily satisfied with it. To complete the transaction, the purchasing business attempts to buy out shares.
Exploring an acquisition is likely to be your exit strategy. It is likely you’ll try to get a buyout company.
3. Sell to someone you know
It is essential to have your firm stay in the hands of its owners. As a suitable exit strategy, it can be viable to sell to someone you are familiar with.
Take a look at some of the folks you might be able to sell your company to:
- Member of the family (e.g., child)
- Customer
- Friend
- Employee
- Business
- Colleague
Consider the disadvantages of selling your company to someone you know or are familiar with. Before selling your business to a family member, friend, or acquaintance, be sure you disclose things like obligations and profits.
4. Initial public offering (IPO)
First selling a company’s stock to the general public is known as an initial public offering, or IPO. “Going public” is another term for this.
A business that’s open to the public, as opposed to an individual one, relinquishes a portion of its possession to public stockholders. Large public businesses often erupt through growth spurts. You can sell off some of your company’s ownership to address debts by going public.
Going public, on the other hand, may be difficult for small companies due to the much time and financial investment required. An IPO may not be the best choice if you need to leave quickly.
You’ll need to identify an investment bank in order to launch an initial public offering (IPO). You will also need to gather financial data, register with the Securities and Exchange Commission (SEC), and establish a stock price.
5. Liquidation
Liquidation is a means for those who want to close their entire firm and sell assets. Due to liquidation, the worth of your assets is distributed to creditors and investors. Creditors get paid first, not investors.
You don’t have to manage or integrate your company as part of a liquidation strategy. Your business shuts down and is liquidated, and your assets are transferred to those who owe you money.
However, if you close your company, you will lose your brand, reputation, and users. Unlike the strengths of other exit strategies, your business will not persist.
Conclusion
Thus, there are a number of different exit strategies that business owners can utilize in order to get the most out of their business. While each strategy has its own benefits and drawbacks, business owners should carefully consider their options and choose the strategy that best suits their needs. Additionally, business owners should always consult with an attorney or financial advisor to ensure that they are making the best decision for their business. BGES uses established methodology to create effective, complete, and pragmatic Business Exit solutions that serve SMEs far more successfully than current procedures. Take the first step by completing our Free Business Exit Survey, which will provide you with a personalized report in less than five minutes.
