Exit Strategies
When planning to exit your business, understanding the different types of exit strategies is crucial. The most common options include selling your business, merging with another company, or going public through an Initial Public Offering (IPO). Each path has its own set of advantages and challenges.
Selling Your Business: This is often the most straightforward exit strategy. It involves finding a buyer who is willing to pay a fair price for your business. The sale can be to a competitor, an employee, or a third party. You can sell all or a part of the business. The key advantage is immediate liquidity, but it may also mean relinquishing control and influence over the future of the company.
Mergers and Acquisitions (M&A): Merging with or being acquired by another company can offer strategic benefits, such as expanding your market reach or combining resources. This option can provide a significant payout and a smoother transition, especially if the acquiring company values your brand and operations.
Initial Public Offering (IPO): Going public is a way to raise capital by offering shares of your business to the public. This option can be lucrative, but it requires meeting strict regulatory standards and involves ongoing public scrutiny. IPOs are inappropriate for most small business owners looking to exit.
Expansion: Expansion through franchising is an often overlooked strategy for exiting a business. This option is not for every business, but it has led to financial success for many entrepreneurs. You retain control of your brand, collecting royalties and other fees, while franchisees run individual locations. Any small business owner that has a company able to be replicated should consider leaving day-to-day operations by franchising.
Each exit strategy has its own set of considerations. Your choice will depend on your business goals, market conditions, and personal preferences. But, in every case, your business must be ready. Readiness for exit generally takes three years. Getting ready includes compliance review, valuation, and most importantly cleaning the books. Strategies for lowering tax liabilities often decrease a business’ valuation and could be a red flag for potential buyers if not executed properly and conservatively.
I work with business owners to help them transition their businesses for exit and stick with them through exit.