- Initial Public Offering (IPO): We’ll get this one off the table early. Sure, they happen, and when they do it makes the news. But in reality, only a very small percentage of the companies doing business in the United States are public, and many of those that are were simply spun off from other large, existing public companies. The occasional Facebook or Twitter-like billion dollar media storm represent exceptions, not the rule. In most cases, an IPO is not the best option for startups or established businesses
Related Article: 10 Reasons Why IPO is No Longer a Good Startup Exit
- Mergers and Acquisitions (M&A): Often, a merger (two companies combining) or acquisition (a larger company purchasing a smaller company) occurs because it’s a win-win for everyone involved. Usually it’s because the two companies complement each other in some way, whether it be products, services, experience, industry reputation, or some other less tangible strength that can benefit both parties.
Or, in the case of a merger, the purchase of the smaller company allows the larger to expand its revenue much faster than organic growth would have. If you can position your company to appeal to other companies who are seeking M&A opportunities, this could be an excellent strategy to consider.
- Sale to a Friendly Buyer: This is often how family businesses change hands from father to son, or perhaps a long-time employee will buy out his former employer who wishes to retire. This is a satisfying option for businesses that are rich in emotional investment which can be worth as much as, or more than, the financial value of the company.
However, it’s important to note that, without extensive planning and/or the help of some impartial third party, this kind of sale can get ugly quick. Watching your offspring battling over rights and responsibilities while the business you built with your own hands sinks beneath the waves is no way to spend your retirement.
Also, if you’re hoping to make top dollar for your company, a ‘friendly’ sale is likely not the way to go.
- Raise a cash cow: If your business is doing well in a stable market, you may well want to pay off any investors, find someone you trust to run it for you and use the proceeds from this successful venture to buy or start another business. Of course, the risk factor lies in having to maintain decent annuities on the primary business, but many successful entrepreneurs have grown their empires this way.
- Sale on an Open Market: For businesses that can be sold based on reasonable valuation, and without an inordinate amount of emotional baggage, offering the company for sale on an open market is an excellent option.
The key to a successful sale in this circumstance is to look at your company objectively from the view of the prospective buyer and make sure you’re offering value. If there are things that are within your power to do (ethically, of course) to improve the perceived value of your company before listing it for sale, do so. Then, be prepared to effectively defend your asking price when speaking to buyers.
- Liquidation: It’s not the goal any business owner is shooting for, but sometimes the best way to call it quits is to just cut your losses and shut up shop. Planning ahead for this worst case scenario will help you decide appropriately when is the best time to do so, instead of realizing you should have done it six months ago.
As is usually the case when having a “what is the best” discussion, the honest answer is, “it depends.”
There are numerous options if you’re considering giving up control of your business, and selling it outright is just one. Exit strategies come in all shapes and sizes—and there will be one that suits your business when the time comes.
Why have an exit strategy at all?
Many entrepreneurs wonder, “Why do I need an exit strategy? I’m in this thing to win it!”
Such business-folk are likely to be young and inexperienced – but that’s ok. Drive and determination are commendable qualities, and the passion behind them is key to success.
However, the importance of an exit strategy isn’t about anticipating death of your dream: it’s about wisely planning ahead to optimize the circumstances if, and when, you decide to switch gears.
In cases where investors are involved, they often will not recoup their finances until there’s a major payoff, which usually comes from one of the strategies outlined below. So, a smart investor will probably want to know your proposed exit strategy before handing over the money in the first place.
On a broader level, an exit strategy offers peace of mind in knowing that arrangements are made and you can confidently move forward towards a set goal rather than just plowing on forever.
What are the options?
Which exit strategy is best for you?
What’s best for your particular business depends on the industry, the current market conditions, the way the business has been run over the last few years, how it looks on paper, and a host of other circumstances that are unique to your enterprise.
And remember, having an exit strategy in mind for your business from day one will ensure you are focused on ultimate success throughout its lifetime. Your exit planning may change over the years, but its very existence will drive good decision making and, in turn, those all-important profit margins.
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