Planning a Graceful Exit Strategy
A good business plan includes an exit strategy. In many ways, your exit strategy dictates how you will operate the business. For example, if your exit plan is to leave your business to your heirs, they will need to be brought on board at some point to learn how to run it. If your goal is to be listed on the stock market, it’s important that you strictly follow all accounting regulations from day one.
Below are some good exit strategies for those who plan to operate their business long-term.
Spend It All
As you get closer to retirement age, you could start to increase your personal salary and give yourself bonuses. If you have a plan and stick with it, you could pay off all your debt before you close up shop for good. As a byproduct of this plan, when that time comes to exit, you can simply liquidate any remaining assets and toss the keys. This is a viable exit plan for a small-business owner who is also the sole-proprietor.
Sell Your Shares
Selling your shares is a good exit strategy for partnerships in law firms or medical practices. When you decide to retire, this means that you would sell your equity to your existing partners or someone new entering into the partnership. Through this strategy, you would make a clean exit and exit with the money from the sale in your pocket.
The next strategy to consider is selling everything you have at market price and using the proceeds to pay off debt. This approach does put you at a disadvantage when negotiating prices, but for the sake of ease it might be a sacrifice worth making. This is a simple approach, but it is also the least profitable.
Next, let’s consider some short-term exit strategies. These would be most appropriate if your business plan does not include operating it for the long-term, but instead only to a predetermined point.
Create an IPO
Creating an Initial Public Offering takes careful planning and is not without risk. An IPO can cost anywhere from several thousand to millions of dollars. However, if you are sitting on the next Google or Facebook, the costs will most likely be covered by the intermediate funding rounds.
Two is better than one in some cases when it comes to a short-term business exit strategy. If you have done your research and determined merging with another company makes sense, a merger can be a fairly quick and profitable way to go. Decide in advance if you want to leave the other company’s leadership in charge or if you will stay on as a consultant for a set period of time until you can be replaced.
Another option is to be acquired by another company looking to keep its value for themselves. Be sure to set a sale price that reflects your business’ true value and even go so far as to court other companies that might be interested in what you have to offer. If you find the right company to acquire yours, you might earn far more profit than you would if you just sold it outright.
Put Out the For Sale Sign
The obvious easy exit strategy is to put a For Sale sign in the window. You can take the money and leave outright. Or you could negotiate for equity from the buyer so that you will earn dividends after the sale. If you go this route, you will want to be sure your business is a good fit for the buyer so that it is more likely to remain profitable.
As strange as it may seem to be thinking about leaving your business before you are ready, potential investors will typically want to know your long-term plans.
Steve Ford is Executive Vice President of Creative Business Services/CBS-Global.
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