Business Exit Strategy – Overview Of 5 Exit Strategies For Small Business
When you plan to start a business, the last thing you have in mind is leaving it. But sometimes, life gets in the way of your plans. Hence, you cannot overlook the importance of drawing out a business exit plan. Moreover, there are two practical reasons why you must design a business exit strategy even before launching your business, which are as follows:
- You must pay back your investors, even if your business is crumbling.
- You might grow tired of your current business idea and want to opt-out of it to try your hands at something new and different.
Business exit planning ensures that the business and investors are protected. Hence, a business exit strategy will always come in handy, whatever the reason you choose to opt out of your existing enterprise.
This article talks about the various exit strategies for entrepreneurs that they should consider to help themselves exit their current business if necessary.
What Do You Mean By Business Exit Strategy?
A business exit plan or strategy outlines the way an entrepreneur plans to sell their business. A startup exit strategy needs to be prepared before starting a company which can be tweaked per the business requirements and market changes. If the business is unsuccessful, exit planning will help the entrepreneur eliminate a lost game and limit losses. On the other hand, if the company is successful, it would enable the business owner to accrue a substantial profit.
Top 5 Small Business Exit Strategies
There are various types of exit strategies. When discussing an exit strategy for small businesses, you can choose from the below according to your personal, financial, and business goals.
1 – Merger
Under this exit strategy business plan, a business merges with another to become one. This strategy would increase your business’s value, which is why this strategic exit plan is popular among people in the industry.
However, merging with another company doesn’t mean that you can sever all ties with your business. You still need to be a part of the business as a manager or co-owner. Hence, if you want to opt out of business altogether, there are better exit plans than the merger.
A merger can be of 5 types, which are as follows –
- Horizontal: when both businesses belong to the same industry.
- Vertical: when both businesses belong to the same supply chain.
- Conglomerate: When two businesses have nothing in common.
- Market extension: When both businesses sell similar products, but their markets are different from one another.
- Product extension: The products of both businesses are complementary to each other.
Before merging your business with another, conduct thorough research to ensure that the company you are about to incorporate into is a good fit for your current business. Otherwise, the decision might have disastrous consequences.
Read Also – Things to Make and Sell: The Online Business of DIY
The acquisition is when you let another company buy your business, which means you would have to give up the ownership of your business.
One of the positive aspects of this exit strategy is that you get to influence and negotiate the selling price heavily. If you are entertaining multiple bids or selling them to your competitor, you might get a higher price than the actual value of your business. It is regarded to be one of the best startup exit strategies.
However, it might not be the right option if you are not ready to let go of your business altogether.
3- Initial Public Offering
An initial public offering (IPO), also known as “going public,” is the strategy of selling your business’ stocks to the public. An IPO can be highly lucrative, yet challenging too.
If you plan to opt for this strategic exit, be prepared to deal with severe ongoing scrutiny from regulatory bodies, stockholders, and the public. In addition to this, an IPO includes performance reporting and mandatory progress. Hence, it is not only costly but also labor-intensive.
This strategy is potent enough to earn substantial profit compared to other exit strategies for entrepreneurs. However, the above negative aspects often make business owners opt for a different approach. IPO is rarely successful, especially for small to medium-sized businesses.
Read Also – Product Research Tips To Help You Build a Business
4- Selling Your Business To A Person Close To You
Due to unavoidable circumstances, you might have to give up the ownership of your business. However, this does not mean you have to shut it down altogether. If you want to see your business flourish under someone close, you may consider giving it to some of the following people –
- Family members (e.g., child or siblings)
- Business colleague
However, before selling the business to someone you’re acquainted with or close to, consider its probable drawbacks. You most likely won’t like jeopardizing your relationships over your business. Mention all aspects of your business, such as profitability and liabilities, before a friend, family member, or acquaintance buys it from you.
This business exit planning is the last option available to a business owner if all of the above different types of exit strategy fails. It means you will be selling all your assets and closing your business forever.
It might sound like defeat, but it might be the right beginning for a new chapter. You can try your luck by launching an online store build with the help of one of the best website builders – Shopivana. Their highly affordable plans will help you create your online store and keep your business running, even if you have to liquidate your offline business.
Once you sell all the assets, you must pay off the debts and the shareholders. Moreover, this is one of the quickest and simplest business exit strategies. However, this business exit planning will likely not fetch you the most significant return on investment.
Although a business exit strategy is universally essential, there is no one-size-fits-all business exit plan. You need to choose the one right for you depending on several factors, such as your business size and financial condition. You might need to modify your strategy as you progress through your business’ life cycle.
However, you must prepare ahead for your exit strategy business plan. You must anticipate the circumstances that might force you to give up your business ownership and how to make that transition process smooth. Suppose you proactively think about this process – what the process might look like, how you would execute the strategy, and what would be the possible consequences. In that case, you’re most likely to succeed when the time comes to exit the company.