If you’re like most entrepreneurs, you started your business with the intention to seek an acquisition. However, others realize later that they need to focus on something else away from their current venture. Whichever the case, you can still plan your exit strategy.
But what is an exit strategy, and which one is the right for your business? That’s what we shall look at in this post.
Understanding an Exit Strategy
An exit strategy is a plan outlining how you (as the business owner) plans to sell your business investment. It gives business owners a way out if they plan to close or sell their business. Ideally, an exit plan should form part of your business plan and need to be changed as your business grows.
Having a clear exit strategy is also necessary when looking for funding. No matter the size of your business, you need to plan how you’ll transfer your business ownership when the time comes.
Including an exit strategy in the business plan is highly recommended for startups. However, you need not worry, especially if you don’t plan to seek funds from venture capitalists or angel investors.
Choosing the Best Exit Strategy for Your Business
Creating an exit strategy beforehand gives you more control over your business. To that end, below are the best exit strategies for your business.
Internal Sale
If you’re so attached to your business and want to leave your business in good hands, this is the best strategy for you. Internal sale strategy allows you to choose a person very familiar to you to manage your business after your exit. It can be a family member, business partner, or your best employee.
The advantage of this type of sale is that it allows you to select someone you have confidence in to build over your legacy. Also, the person knows how the business is run and managed.
Most often, the buyer is committed to ensuring the business works since they have an emotional attachment. Selling your business internally also gives you enough time to plan your exit.
The downside is that you may end up sacrificing the price. The fact that the buyer has significant knowledge about the business gives them more power during negotiations. Selling your business internally could also cause conflict among family members or close business associates interested in the business.
Additionally, your relationship may be affected if any liabilities are passed to the new buyer.
Merger and Acquisition
A company may also opt to sell itself to another company resulting in a merger of services. An excellent example is when Google purchased YouTube and integrated the video platform into their products. That’s why the video option appears on Google searches.
Mergers happen more often and are an ideal approach, no matter the type or size of the business. The best thing about a merger or acquisition is that you stand to sell your business at a higher price if you align yourself strategically. In fact, if many potential buyers are interested in your business, you can end up selling your business beyond its estimated value.
One major downside of acquisition is that a buyer may decide to fold your business after the purchase. This will leave your employees unemployed and give the new buyer access to your customer’s information.
Selling Your Business to Third-Party
Another common exit strategy is selling to the market. No matter your business value, you’ll want to find buyers willing to purchase it. You’ll need to seek the services of business brokers, accountants, lawyers, and other consultants alike to help you in the sale process.
The best thing about this strategy is that you can ask for a higher price than when selling to a friend or family member. Besides, your business might attract multiple buyers leading to a better price.
The downside is that it may be hard for you to cope with the handover. The new owner might not uphold your values, which will make things hard for you.
Liquidation
Liquidation is a common exit strategy among small businesses. It’s an ideal option, especially if the business’s operations depend solely on the business owner. Most often, no family member can take over the business, or the business is at risk of bankruptcy.
However, you must remember that money obtained from the assets’ sale will be used to clear any outstanding debts first. Ideally, a business needs to have assets like land and equipment to make money through liquidation.