22 September 2012 ~ 0 Comments

What is Your Business Exit Strategy?

When you start your own business or enter into a partnership with another person, of course you hope that everything goes smoothly and that it works out well, but did you consider all of the different ways the venture might come to an end? All things have a life cycle, and businesses are no different. Sometimes they end for good reasons, and other times they end for bad ones. Regardless, it’s imperative that you think about potential exit strategies and discuss with a potential business partner before entering into a partnership. Make sure it’s clear and it’s in writing.

Below are

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several tried-and-true types of exit strategies that may apply to your business.

Selling to a Friendly Buyer

In this strategy, if it becomes necessary for you to remove yourself from the business, you select someone close to the business who might be interested in purchasing it. Consider your loyal customers, family members, or

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even employers or managers within the company. If you or your partner find that one, or both of you, would like to exit the business, this may be a good option.

  • Advantages
    • The person you’re selling the company to is already familiar with the business
    • They may already be familiar with the customers and the inner workings of the business and it’s needs
    • Their interest and motivation for purchasing the company are likely to be in line with yours
  • Disadvantages
    • If the business falls apart on them, it can ruin relationships
    • You may get taken advantage of, intentionally or not, because you may be so drawn to the person that you leave too much open for negotiation
    • If more than one person in the family feels they should be able to buy the business, jealousy can become a huge issue

The Acquisition

This business exit strategy is usually intended for a partnership that hopes to exit the business due to a significantly profitable event. The goal is to build the business up and then find a larger business in the same niche to buy your business. This is great for a business that you have no desire to hang on to for the rest of your life.

  • Advantages
    • If you find an acquirer that sees your business as a good investment, you can get more than your business may be worth at the time
    • This type of goal makes the exit strategy very concrete and lays out the goal of the business from the beginning. In other words, “the partnership will end if we can find someone to make us rich!”
    • Disadvantages
      • Acquisitions can get messy
      • The financial gain you are seeking may never be realized
      • If you are not passionate about the business to begin with, and that’s why you’ve chosen this as the exit strategy of choice, then the business can start to feel like a noose around your neck if your goal of acquisition isn’t reached within the timeframe you had laid out

Liquidation

This is a clean and simple exit strategy if you no longer want to remain a part of your business. In this business exit strategy, you simply close the doors and liquidate your assists. This often happens when a business starts to loose money. It could also be an intentional goal. For example, you can imagine a semi-retired couple that runs a bakery for fun and have agree to simply liquidate their assets once they are too old to do it anymore.

Advantages

  • Clean
  • Simple
  • No negotiations

Disadvantages

  • No big payout
  • If it’s done as a means to get out of a “sinking ship,” it can feel like absolute defeat

Merging

In this strategy, you find another company that is similar, and with whom you can work well with. Then, you get together, combine assets, and combine the two smaller companies to form one larger company. This could be the goal for partners looking to grow a business enough to catch the attention of major players in the market. Partners looking for this type of an exit strategy usually want to remain in the business longterm.

Advantages:

  • Allow your business to continues thriving (or surviving)
  • Allows you to continue to be involved in the business
  • Allows for an instant increase in the assets and resources available to both parties

Disadvantages

  • You have to find a very good fit
  • Takes a significant amount of time to implement
  • You may be asked to take a much smaller role

Never Exit

One business exit strategy that many business partners fail to discuss is the possibility of never exiting at all! There are plenty of entrepreneurs who absolutely love what they do and would never what to sell “their baby.” If you think that you might fall into this category, it’s extremely important to make sure that you share this with any potential partners. You can also discuss and write down concrete reasons as to why you would exit the business (debt, illness, etc.).

Advantages

Disadvantages

  • Regardless of the partnership agreement, things can get ugly if one person decides they want to move on from the business for some reason
  • If this is all you know how to do, it’s easy to put everything on the line to make it a success. This can tear apart partnerships and result in significant debt.

In general, I’d have to say that I’m a fan of the “never exit” strategy and the “acquisition” strategies. “Never exit” is great if you have truly found a business that you love to wake up and take care of and grow. The “acquisition” strategy is fun and exciting because it lends itself to an end goal. Once that’s been reached, there’s a sense of accomplishment and you can go on to other things in life… like retirement!

What kind of exit strategies have you exercised in the past? What do you feel would be the ideal exit strategy for you in your current business? I’d love to hear what you have to say so please leave a comment below.

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