Do you want to stay in your business forever?
When you’re starting a business, this question can seem a little counterproductive.
However, even this early in business, it’s important to be realistic – and that means to keep your future goals in mind and plan including your exit strategy.
In this article, I’d like to talk in detail about what such a strategy entails, what the advantages and disadvantages of different types of strategies are and what questions to answer when planning your exit strategy.
Contents Exit strategies: what you can do when you want to get out of the business
- Strategy 1: Sell your business
- Strategy 2: Merge with another business
- Strategy 3: Transfer the business to an heir
- Strategy 4: Liquidate the business
- Strategy 5: Sell the business to your team
# What to watch out for when thinking about exit strategy
All companies, large and small, need an exit strategy. And exit doesn’t always mean planning for failure.
For example, you may have set out from the start to open a business and sell it after a certain number of years or after you have reached your profit target. Or maybe you want to retire at a certain age.
Most of the time, having an exit strategy helps to move your business more smoothly to the next stage of growth, in which you are less or not at all involved.
Here’s another way an exit plan can help:
- You more easily protect the business value created in a given time frame.
- Realistically create a strategic direction to accelerate business growth.
- Helps you reduce the financial consequences to your spouse, family or property.
- Demonstrates your dedication to your stated vision and mission.
- Helps you grow and communicate the value of your business correctly.
- Helps you make the right decisions to prevent unwanted consequences like bankruptcy.
Once you create an exit strategy that’s right for you, it’s important to review it annually in relation to your goals and performance.
Like a business plan, an exit strategy can be updated and expanded so that it remains effective over time.
Good. What do you pay attention to when planning your exit strategy?
- What are your objectives? – and here I’m referring to your individual goals. Do you want to have a specific ROI or maybe you want to create a legacy? Once you know what you want to achieve at exit, you will also figure out what type of strategy to go for.
- What is the timing? – Sets the time frame in which you plan to go out of business. When you know this, you can plan your moves and tactics over the given time frame.
- What are your intentions? – what do you want to do with the business in the end? Do you want to shut it down completely, sell it, or leave it to someone else?
- What are the market conditions? – they could dictate when you sell the business. If there is increased interest in the market and you have multiple potential buyers, then chances are you will sell for a higher price.
Other things to consider are the presence of investors or lenders involved in the business, the evolution of your team and general or financial expectations in the market.
As I said above, even if you plan a certain strategy at the beginning, it is not set in stone. It may evolve or change completely, depending on the business environment or changes in your personal life.
Read also: Business plan, from A to Z. How to start a business without making mistakes
Strategy 1: Sell your business
Let’s take a quick look at the most popular forms of exit to draw inspiration from for your plan. Each has both advantages and disadvantages.
Start with selling your business to a new owner, in this case an unknown person or even a competitor (to whom you can sell more expensively).
It’s a common strategy on the Romanian market, so it wouldn’t be surprising to see such a sale offer on the profile groups, at least once.
However, selling your business is not a suitable business strategy for everyone. You may not be ready yet to sell your business in its entirety.
Or if you sell, for example, to a competitor, they may ask you to sign a non-compete clause – and that means you won’t be able to open a business in the same industry.
So this is the advantage of selling = you part with your business for good and sell it for a consistent profit.
Disadvantage is that selling your business will be a time-consuming process, and the chances of your business ceasing to exist in its current form are very high.
Strategy 2: Merge with another business
This type of exit strategy has the great advantage of increase the value of a business. In general, mergers happen collaboratively, between two businesses.
Following the merger, you as the owner of the business usually take a position in the new company, either as owner or manager. Your business grows in size and becomes more profitable.
But there is a downside, depending on your intentions: if you want to retire or divest the business altogether, the merger will complicate things more for you.
Problems may also arise in the process of adapting employees and the systems used.
Strategy 3: Pass the business on to an heir
If you want to create an inheritance, then selling or transferring the business to someone you know is an excellent exit method. For example, you may want to leave your business to your children or a close relative.
The advantage of this strategy is that you can prepare your successor in advance to take over your responsibilities. You can also remain in an advisory role to the new management of the business.
The disadvantage, however, is that you cannot be 100% sure that you have found the right person to be your successor. Misunderstandings may arise between you or, at worst, you risk your relationship altogether.
Read also: How to adjust your marketing plan for the next 6 months
Strategy 4: Liquidate your business
Liquidating a business is a strategy many entrepreneurs choose when they want to get out of the business for good.
This process involves selling all assets owned by the business and covering all debts to creditors or investors, including the fees required to close the business.
Any money left over from this process is yours and is often used to support the lifestyle you want to have. Basically, the resulting funds can be used however you want, personally or perhaps professionally, if you are thinking of starting a whole new business.
The downside of such a strategy is clear: your business will cease to exist, and relationships with your employees, investors or customers may be permanently destroyed.
Strategy 5: Sell your business to your team
A variation of strategy 1 is to sell your business to a team member, your business partner, your management team or another trusted person.
It’s a popular strategy and comes with multiple advantages. You already know you have a buyer interested in your business and eager to carry your legacy forward for a period of time.
Often, the seller and buyer come to a financial agreement on a longer-term acquisition plan. In this case, you, as the seller, can maintain your income stream, without making as large an investment. And you can stay in business as a mentor to the new owner.
The disadvantage of selling to people you know and with whom you already have a relationship is that the value of the sale may be much lower, just for the sake of maintaining that relationship. Then, this move could cause tension in the team.
Of course there are other forms of exit, such as going public, having your team acquired by another company, etc. But today we’ve given you a starting point from which to research to find the right solution for you.
Read also: Structuring your business, from chaos to controlled planning
An exit plan doesn’t mean you’ve screwed up. Or that you’re getting out of your business altogether.
It’s important to have it and be prepared for whatever events and situations arise in your market. Keep an eye on the future of your business and make sure you have a concrete plan for when you want to exit.
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