The Types of Business Exit Strategies: Which One Is Right for You?
Almost half of all business owners don’t have an exit strategy. Though it might sound surprising, it’s easy to see how this happens.
When we start and build a business, it’s a commitment that’s often unmatched in other areas of our work life. So, we don’t give much thought to what will happen when we are no longer a small business owner.
But having an exit strategy is vital to ensuring your legacy lives on, and you get the financial rewards you deserve.
In this article, we’ll explain the main types of business exit strategies to help you determine the best one.
Business Exit Strategies: Why Your Choice Is Important
Even if quitting your business isn’t imminent, an exit strategy is a crucial roadmap. It helps you set your sights on the future and ensure your business thrives long after you leave.
That includes protecting assets, employees’ jobs, and your brand’s reputation. It will also ensure you get the best return from all the time and money invested in your business.
So whether you intend to retire, make money, or want a change of scenery, an exit plan is a must.
Liquidation
Liquidation is a last resort for a business that can’t continue operating for financial reasons. This exit strategy is often involuntary and happens when you have a struggling business.
When you liquidate a business, you turn any remaining assets into cash and use that money to pay creditors. Those assets may be physical items, or they could be things like your website or intellectual property.
It’s an exit strategy that rarely yields a healthy financial return for your business because your priority is paying debts. That’s why it’s only considered a choice when other options aren’t available.
Selling to Another Business In Your Industry
This exit strategy is also known as selling to strategic buyers or a business acquisition. Companies combine forces, with the purchasing company taking charge of both.
It could be a company in your industry – in other words, a competitor. Or one that can see synergies between your business and theirs.
This sale can often happen at a premium price because the company gains benefits beyond what your business offers in a standalone deal.
A competitor, for example, will acquire your clients and a larger market share. However, this is also a tricky exit strategy to execute.
It requires lots of planning, and you’ll need to work hard to align both businesses to create a smooth-running operation. It also means parts of your business, like your brand name, may disappear forever.
A Merger
A strategic buyer will buy our your company. In contrast, a merger is one where both companies join to form one new single entity. This is a popular form of exit strategy.
It allows business owners to leave their management and leadership responsibilities. However, they may continue to play a non-operational role on the new board.
So, it gives owners the chance to help their company thrive after they exit. It’s a chance to earn higher long-term returns, as you may continue to own shares in the newly merged business.
Management Buy-Out
A management buy-out is when part or all of your management team buys the business from the owner.
It’s a unique succession plan for a business, putting your company in the hands of people who already know how to run it. That means business continuity is often excellent.
That’s a central factor in the future success of a business when an owner sells it. The process also empowers a committed team to push the company forward and help it to grow.
Moreover, it often safeguards employees’ jobs, as new owners often run things without significant changes.
Family Succession
Perhaps one of the most traditional exit strategies for a business owner is passing the company on to a relative, often an adult offspring.
It is often a popular option because it’s a way for future generations to benefit from the business and a chance to maintain the business name and reputation. It can be straightforward or complex, often depending on family dynamics.
You need someone with a suitable skill set and a firm commitment to running the business. You also need to decide what input you want after you pass the company to someone in your family.
It’s helpful to set terms in a legally binding framework to avoid disputes or issues later.
Venture Capital Firms
You can sell to venture capital firms or private equity firms. Most often, these firms buy a share in a company rather than an outright purchase.
It’s useful for companies needing cash injection to grow in a competitive but promising market space. Private equity firms are more likely to invest in mature companies.
The advantage of these investors is that they embrace high-risk ventures, but that often comes at a price because they want a generous share to reflect that risk.
However, they also play a central role in helping that company grow, using industry expertise to allow it to thrive.
Selling a Business to a Private Buyer
You’ll typically use a broker to sell a company to a private buyer. Doing that helps you access many potential buyers instead of trying to find one directly.
These are people outside of traditional finance circles and may be new to your industry, too.
It could be an entrepreneur wanting an established company with the potential to grow or someone outside the industry who wants to expand.
This sale will need careful negotiation to help you get the right price.
However, it’s an opportunity to get offers from more than one buyer and the chance to select one that best fits your business priorities.
For example, that could mean the price they pay or a commitment to retaining employees or the brand.
Getting Rewarded for Your Business
You’ve put effort and passion into your business and taken many risks to help it grow. So, ensure you understand the types of business exit strategies available, as it will help you gain the financial rewards you deserve.
Head here to explore Fusion’s services for more information on selling a St. Louis business via a broker.