A study by Securian Financial revealed that 72% of small business owners have no exit strategy at all. Business owners are unaware of the types of exit strategies for business. Having an exit strategy is as vital for small businesses. Moreover, it helps in reducing losses. 

What are the exit strategies for businesses?

Exit strategies for small businesses don’t help only in case of losses. Business ownership is transferred even at the profit stage. Owners simply might want to leave the business. That’s where an exit strategy comes to play its role.

Moreover, an exit strategy helps in securing business investments. It also helps in limiting losses.

Why are these strategies essential for a business?

An exit strategy offers a blueprint of the future. Firstly, it helps visualize whether you will pass the business to someone or sell it. Secondly, it’ll be ready with the next person at the helm and an exit period. Also, having a clear plan increases the trust of prospective buyers.

Thirdly, it prepares you to handle the emotions of exiting your brainchild. Lastly, tons of documents and paperwork are always involved. So, you will have a real-time plan to execute before exiting the business. Before discussing the best exit strategies, note the following:

  • Time period you wish to run the company for. 
  • Current financial status and what you aim to make in future.
  • Process of compensating investors or creditors if required.
  • Check out the various types of exit strategies for small business.

1)     Merger

Two businesses combined into one is called a merger. As a result, it skyrockets the value of the business. Also, it attracts investors. You are a part of the merged company. Furthermore, you hold one of the top management positions. There are 5 kinds of mergers:

  1. Horizontal Merger: Both businesses produce and sell the same products.
  2. Vertical Merger: Both businesses utilize different supply chains.
  3. Conglomerate Merger: Two indifferent businesses.
  4. Market extension: Both sell the same goods and services. Both are competitors in a different market.
  5. Product extension: Products are the same and operate in the same market.

Pros:

  • Both businesses have negotiating power.
  • You can take a short, negotiating business.

Cons:

  • The legacy of your business can be at risk.
  • Time-consuming and expensive.
  • The success of the merger isn’t guaranteed.

 

2)     Liquidation

Liquidation means winding up the business and selling all assets. It includes clearing all debts and third-party payments. This happens when a business owner can’t sell the business in any other way. Also, a liquidator is hired to ease the process.

Pros:

  • Final closure of business and your legacy
  • It is a clear-cut strategy. It is simple and quick compared to other strategies.

Cons:

  • Return on investment in this strategy is likely to be below
  • Further impacts your employees, partners, clients, and customers.

 

3)     Initial Public Offering (IPO)

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public , Investopedia defined. This strategy is used to generate additional capital. The private company transfers to a public company. Thus, businesses attract more investors.

Pros:

  • Medium of brand awareness and building strong goodwill
  • Converting to a public company can be profitable

Cons:

  • Long & costly process.
  • Additional new duties of filing SEC reports.
  • Reduces flexibility and decision-making power.

 

4)     Management and Employee Buyouts

The internal members of the company purchase or acquire the business. These members are aware of daily operations. On top of that the higher-level executives fill the required gap. That’s why they can manage the company. 

Pros:

  • Experts of your own company run and manage the business.
  • The straight and less hectic process as compared to selling to a third party

Cons:

  • Top level executives might fall short in taking duties.
  • Changes in higher level management lead to a negative environment. 

 

5)     Family succession

It is believed that family succession exit does not need to be planned. Whereas, it holds equal importance as any other exit strategy. Leads to business being in your family only. Owner passes down the business to the child, spouse or other family members.

Pros:

  • Family members are aware of the daily business operations
  • Having a plan will help you train that person to run the business efficiently

Cons:

  • Chosen candidate might not have leadership and required skills
  • Mixing professional and personal life might evoke stress.

A Strategic Plan is needed while turning around a declining business. Besides, the Strategic Plan provides a blueprint. 

Let us help you develop a powerful Strategic Business Plan here

 

-by Dipali Nishad