No matter your business goals, planning and preparing your exit strategy is essential. There are a variety of business exit strategy options, and the best option for you may not be the same as another person or business. In this article, we will discuss what an exit strategy is and some of the options available to you as a business owner.
What is an Exit Strategy?
Simply put, an exit strategy is a plan outlining how an owner intends to leave a business. The plan details how the transition will take place, whether the exit involves selling an investment or closing the business. Contrary to common misconceptions, a business exit strategy does not equate to a tragic end or represent a worst-case scenario contingency plan. Preparing an exit strategy is not a negative event; rather, it is a wise practice of preparation and planning to achieve the result you desire.
Consider the necessity of a startup plan to guide the launch and growth of a business. An exit plan for an owner’s conclusion with a business is equally important. Likewise, just as a startup plan is tailored to each business and its owner, an exit strategy should be as well. The right exit strategy for you will depend on several factors relevant to your priorities, the growth of the business, and changes in the market.
Identifying the right option from a wide range of exit strategies requires careful consideration. We have worked with hundreds of business owners to help identify and plan the best exit strategy for themselves and their businesses. Whether you anticipate an exit soon or on the very distant horizon, it is wise to become familiar with the following options.
Examples of Business Exit Strategies
Family succession is when an owner passes the business to a family member as the successor (e.g. children or another heir).
Management or Employee Buyout
A buyout by management or an employee is when an owner wants a management team, an employee, or a group of employees who helped him or her run and establish the business to take over.
Partner or Investor Buyout
A buyout by a partner or investor is ideal if you are ready for an amicable exit and have a partner or investor willing and capable of buying your share of the business. This is also an option when partners no longer wish to be partners whether due to conflict or other reasons; in this scenario, selling your portion to the business partner or other investor can be the best option.
A merger involves the combination of two businesses to create one new entity. Mergers can fall under any of the following categories:
- Horizontal: both businesses are in the same industry
- Vertical: both businesses are in the same supply chain
- Conglomerate: the businesses aren’t alike in any aspect
- Market Extension: both businesses sell the same products but in different markets
- Product Extension: the businesses sell different products that would go well together.
An acquisition takes place when one company buys another. Normally a larger company will strategically acquire a smaller company. The acquired company may or may not be in the same geographical area or even the same industry as the company doing the acquiring. Strategic acquisitions represent a great deal of the business exits our clients choose. In this article, we take a detailed look at what makes a successful acquisition.
Initial Public Offering (IPO)
This is also known as “going public.” It means offering shares in the company to the public for purchase. While this option can be very lucrative, business conditions need to be exactly right for success; this kind of success is quite rare, especially for small and medium size businesses.
In a liquidation, business operations cease and assets are sold. This is among the simplest and quickest methods to completely let go of a business but is also not likely to provide the best return on the investment. The challenge here will be to ensure that the finances obtained from the process would suffice the payment of debt and payout to shareholders
What is the Best Exit Strategy?
As we mentioned above, the best exit strategy will not be the same for every owner or every business. Different options are appropriate for different scenarios. Determining the best exit strategy will depend on factors specific to you, your business, and the market you are in. Consider the following questions.
- What is the scale and structure of my business?
- How is my company doing in the current economy?
- Whom do I consider my entrepreneurial family members or friends?
- Who are my competitors in the market, and how is my business thriving?
- To what extent am I ready to let go of my control and influence over the business?
- How important is it to me to keep my business intact?
- Which type of strategy supports my personal goals, financially and otherwise?
- Which strategy supports my goals for the future of the business and my employees?
How Do I Choose An Exit Strategy?
One of our highest priorities is to ensure that business owners have the information they need to make the best decisions for themselves and their businesses. To help you identify and prepare the right business exit strategy, Viking provides
- Business valuations
- Goals and gap analysis
- Benchmarking analysis
- Key metrics and activities to track
- Alignment analysis among partners/key stakeholders
- Estate planning support
- Capitalization and growth planning
- Cash flow projections and forecasts
- Actionable suggestions for improvements.
If you need assistance identifying and planning your business exit strategy, we are here to help. Contact us today for a confidential, no-cost consultation.