When You Start Or Buy A New Business
A career as a business owner has a beginning and an end. If you are giving birth to the business of your own or adopting one that is already operating, it is important to spare a moment’s thought for how you plan to end this chapter of your life. You need an exit strategy. Take the time to review this information before your busy career as an owner gets too far along.
Even though the range of different businesses in the world is virtually endless, the number of potential exit strategies available to their owners is surprisingly small.
Close Up Shop
This is the end that might be forced on you by unforeseen circumstances, like economic downturns, disasters, or health issues. However, it is also a perfectly viable strategy to plan for. Closure is most appropriate for small business or independent one-person ventures where your responsibilities are relatively simple. All you will need to do is attend to your outstanding debts, settle affairs properly with any employees and convert the remaining assets of the business to cash and move on.
Pass The Business On
Another option is to find a worthy successor and pass along your stake in the business to him or her. This is often a family member but it may also be an employee. In many mid-sized businesses, the upper tiers of the management team can pool their resources to purchase the business from you. This is known as a management buy-out and it allows you to step out of the business without interrupting its operations too severely.
Take The Business Public
This is the dream option for many business founders, especially optimistic entrepreneurs in the technology industries. Making a name for yourself and your business and attracting the right kind of investor attention can multiply the potential value of your company many times over. Making an initial public offering (known as floating your business in the UK) is often the exit strategy that delivers the greatest financial rewards. Be aware that it is a long, expensive and demanding process, though. It may also take time to fully extricate yourself from the business’s operations and realize the full value of your share in it.
As long as you build a profitable business with good long-term growth potential, selling it entirely is always an option. The most common buyer to turn to in such a situation is a much larger player in your industry to merge with the company or acquire it outright. Accepting a merger offer will immediately deliver an enormous financial windfall to you. Your departure from the company is usually swift, making this option ideal for quickly-planned exits. Of course, mergers are not always available close at hand. You may have to work to set one up.
Why Your Exit Strategy Matters Sooner Than You Think
Your planned exit strategy will play a key role in how you organize your business right from the very beginning. Certain financial arrangements are poorly suited to certain strategies. Partnerships and sole proprietorships, for instance, are difficult to sell or take public. The cost and difficulty of altering your business’s structure to accommodate a specific exit strategy can often reduce its overall value and have a negative impact on how much money you end up taking with you. Isn’t it more practical to let your preferred exit strategy dictate the initial form of your business?
Over time the practicality of your different options is going to change. For instance, you may have planned from the beginning to leave your company by accepting a management buy-out when the time was right. If the time comes and your management team does not have the financial resources to buy your share, though, you will need to modify your plans. In this situation combining a buy-out with another exit type, like an IPO or a merger is often the solution.
Every entrepreneur who starts up a brand-new business is dreaming big. Before your new company starts growing, just take the time you need to think about your eventual endgame. By mapping out an exit strategy or two for yourself, you can lay down a cohesive long-term plan for the company and secure your own future after your time with the business is done.
Thomas Gunner is a successful entrepreneur and business owner. He operates ReviewFilter.com, which is a cloud-based tool for Hotel And Restaurant operators that engages with recent customers via email or SMS and invites them to give feedback on their recent experience of your business.