Whether you are an investor or the owner of the business itself, you need to have an exit strategy in sight before your business is in full swing. Why?
Well, that’s because every business requires proper planning for ultimate success. You need to have a starting point as well as an ending point. The ending point primarily acts as your ultimate target. Thus, becoming the fuel and direction of your line of action. Without it, you may not be able to use all of your skill, effort, and resources, to their maximum potential.
With that said, exit strategies are particularly crucial for small businesses. That's mostly because their reserve of resources happens to be much more limited. So one needs to spend as carefully and effectively as possible.
Consequently, that very fact only elevates the importance of an exit strategy to a level higher. Hence, the purpose of this post is to help you out with picking the most suitable exit strategy for your small business, as per the industry trends 2021.
Things to Consider
Before we head onto the possibilities, let us first consider the factors that should or may influence your decision. Perhaps, the very first aspect that substantially influences your decision is the objective of your business. You need to question yourself whether you started with this venture solely for making bucks or is there a greater noble cause behind it? Do you wish to change the look of your future or someone else’s future? Whatever it is, you need to be honest with yourself to reach the most effective decision.
With that said, the following are some lead factors to consider:
Your Future Role
Question yourself: how much control do you wish to have by the time you exit this business? Do you want to quit office completely, or do you wish to have significant authority?
In case you want things to remain more or less the same, an initial public offering or management buyout may be a more suitable option for you. However, if you want to retire entirely, you may want to opt for strategic acquisition.
Your Business’s Future Potential
Third and perhaps most important, you ought to consider what’s your business’s future potential. If there’s a chance that your company will soon thrive to shift its status from small scale to one of the leading businesses, then you might want to consider an exit strategy with ever-lasting, percentage-based shares.
Or perhaps, you might want to wait several years before claiming your returns from the business. If for some reason, you do not see it happening, then you might want to opt for an exit strategy with immediate returns so that at least you can take care of your current needs, debts, personal loans, and expenditures.
By liquidity, we refer to the output that you will receive upon implementing your exit strategy. Do you want immediate cash? Or do you want to wait for several years and claim a share in the increased earned profits? Or perhaps, you would like to proceed on a sharing basis with mutually agreed terms and restrictions? Only a clear approach towards the matter can help you make the right decision.
Top 5 Exit Strategies to Pick From
Technically and factually stating, there is an abundance of ideas out there suggesting the right ways of exiting your business. Coming to think of it, even you can design your custom plan and give it a fancy name to introduce your very own exit strategy.
However, this article aims to compile only the universally accepted, trusted, tested and verified ways of exiting a business so that you have a trustworthy plan ahead. Our top five favorite picks amongst all are:
1. Initial Public Offering
Often referred to as IPO, an initial public offering is an exit strategy wherein a business gives part of ownership to investors or stockholders from the general public. It helps raise the fund bank, and also makes the business more resourceful for both business owners and investors. Opting for this strategy is more advantageous, but it may be difficult for small businesses. That’s because it requires time and effort.
Merging refers to the coming together of two separate businesses. These businesses may as well be your own or someone else’s. The aim is to look for common grounds. The greater the common grounds - the better the success chances will be. As of yet, there are multiple types of merging possible. For example, horizontal merging refers to merging two businesses in the same industry. Vertical merging refers to merging businesses from the same supply chain. Similarly, conglomerate refers to two businesses having nothing in common. And product extension refers to two businesses having a similar product range.
3. Passing on to Family or Friends
If your business is more like your child, i.e., you’ve tended to it with all your heart and soul and seen it grown into one independent entity, you might not be okay selling it to just anyone. In such a case, we’d recommend you to transfer your business to family or sell your business to close friends. But while you do so, bear in mind, you don’t want to ruin relationships solely based on that.
Evident by the name, acquisition refers to the business getting purchased by other businesses. Usually, competing or leading large-scale businesses may purchase your business. However, you need to know that there are two types of acquisition, when it comes to exit strategies, i.e., hostile and friendly. So, you need to look out and avoid getting into hostile ones. Keep it as friendly as possible. The purchasing party may have you sign a business purchase agreement saying that you won’t engage in the establishment of a similar business.
Video: Hostile takeovers explained | Marketplace APM
Liquidation is calling it quits ultimately and entirely. You will be selling all your business assets, and the business will come to an end. With the acquired money, you need to pay back to the people that you owe money to. Of course, the profits are something that you receive.
Lastly, we ought to let you know that your choice of exit plan impacts the legal structure of your business as well as the most suited types of revenue models. It even determines whether you should be investing in long-term growth or short-term growth.
Technically, you could say it determines the operating mechanism of your business because, as mentioned earlier, it sets up your ultimate goal or target. So, you pave your way through accordingly. For this very reason, pay as much attention and time as need be to make the right decision. Good luck!