Some business owners launch with the idea that they’ll stay on forever—even though deep down, they know that’s impossible. Others start a business fully intending to exit at a predetermined point in the future.
Either way, it’s vital for any business owner to plan for the fateful day they’ll step away from the organization they’ve built. Alas, crafting a well-considered “exit strategy” is a task too many owners overlook or put off. But if you’re reading this, odds are you’re ready to pin something down. Smart move! So let’s review the basics of what you need to do.
Know your intentions.
At heart, an exit strategy is only a game plan for how and when you want to leave your business. But it’s also about how you aim to capitalize on all the blood, sweat, and tears you poured into that business—your investment—over the years.
Do you plan to sell and cash out? Will you pass the baton to a partner or family member? Are you comfortable shutting the doors and hoisting a metaphorical “CLOSED FOREVER” sign?
Your intentions dictate the steps you’ll have to take to implement a successful exit plan. And that plan puts you in control of how and when you leave. Without it, you’re subject to the whims of external factors, essentially leaving things to chance. Few owners have ever flourished that way.
Types of exit strategies
Business sale
Selling is a popular if sometimes tricky option. There’s almost always an investor—or a competitor—waiting in the wings to snatch up a strong, established business if it’s turning a profit and the price makes sense. The key to getting the maximum price is knowing your business’s worth and being able to prove it.
Similar options are merging with or being acquired by another business. These routes tend to be more common in certain niches, though, like tech startups bought by mega-corporations chasing hot new programs.
Selling, merging, or acquisitions can all be hard pills to swallow, given that most owners put so much of themselves into the business they nurtured for so long. But in the end, business is business—and these options are time-honored ways to reap a nice return on investment, potentially securing your retirement funds… or giving you the capital to launch a bold new endeavor.
IPO
Initial Public Offerings (IPOs) are another common exit strategy, especially for owners and investors who are ready to cash in the years of equity that’s been built. As noted by Linqto, “Ideally, early investors aim to realize substantial gains from the increase in share value since their initial investment.”
Makes sense. But the IPO process can be complicated, time-consuming, and costly. There are definitely mixed opinions when it comes to this strategy—especially if the business is growing. Selling early could net a hefty payday and help owners avoid future risks… but it also means possibly missing out on an even bigger payday if the company skyrockets in the years to come.
Passing the torch
Family business owners are much more likely to pass the torch to the next generation, usually one of their children. This tradition helps to preserve a valuable family legacy and, in theory, keeps business values consistent from one owner to the next (which is important for brand loyalty from consumers).
In terms of generational wealth building, it’s hard to beat a successful business. Just ask the Walton family, whose net worth is around $260 billion thanks to the heritage of Walmart’s founding brothers Sam and Bud Walton.
Employee buyout
Sometimes a business’s own employees are eager to chip in and take over. Nothing wrong with that idea, as long as they have the finances and business know-how.
As Investopedia writes, “An employee buyout (EBO) is a restructuring strategy in which employees buy a majority stake in their own firm. This type of restructuring is a company takeover by its workers. For small businesses, an employee buyout often focuses on the sale of the company’s assets.”
Liquidation
Sometimes, the best bet is the easiest. Liquidate the business’s assets and close the doors for good. It won’t be the most profitable exit strategy, that’s for sure. But if business is lackluster and there are no buyers and no family members who want to take up the challenge, then shutting down shop might make the most sense.
It’s a hard call and can be even tougher if you have employees to let go. Still, as long as you plan it right, this is a viable and very common option.
Crafting your exit strategy
The devil’s in the details, so whatever strategy you go for, make sure to plan it out right.
Start early. Ideally, you should ponder your exit plan at the same time you’re planning the business! If that ship has sailed, start planning now.
Get a value assessment. Never make a decision until you know what your business is worth (and why it is worth that amount). Have your business’s market value assessed regularly, and study the reasons why it’s at that point—and what factors could make that number go up or down.
Keep meticulous financial records. We mentioned the key to getting the maximum price for your business is knowing and being able to prove your business’s worth. You prove it through meticulous financial records.
Build an all-star management team. A single point of failure is never reassuring. If you want anyone else to take over your business, you need to show it can flourish without you. Having an all-star management team will help convey that impression.
Study market conditions. The world’s an unpredictable place. Even the best analytical tools and consultants can’t see the future. Still, their insights are better than nothing, so use them to stay aware of the trends and market cycles that impact your business. That way you can hopefully time your exit just right!
Consult experts. Chances are you’re an expert at what you do, right? But unless you exit businesses on a regular basis, you’re not an expert on exiting businesses—so get in touch with the financial and legal wizards who are.
Establish a post-exit plan. One day, you’ll be sitting on the other side of business ownership, and guess what? Unless you make a plan for how to spend all your newfound free time, you’ll be bored! So talk with loved ones, friends, and trusted advisors to figure out what you want to do next!
Get efficient through outsourcing. During the months before your involvement with the business winds down, you and your team may be busier than usual as you prepare for the change. The right outsourced services, such as virtual receptionist solution, may help take off some of the pressure.
Wherever you are in your business journey, you’re not alone. Whether you’re looking for help today or insights that will help you reach your goals tomorrow, Ruby has you covered. Learn how we can save you time and win you customers, or check out our blog for more small business tips.
