Traditional and Non-traditional Business Exit Strategies * Incedo Group

Traditional and Non-traditional Business Exit Strategies

What’s the first thing most entrepreneurs write when starting a business?

A business plan.

These plans are often comprehensive, detailing what they will do during the startup years of the business. But what’s missing from these seemingly comprehensive business plans? In most cases, it’s lacking options for business exit strategies.

Business exit strategies are an important part of the business plan, no matter how dreadful it sounds. Perhaps, it’s hard for owners to imagine quitting a business that they have worked so hard to set up.

Some start-up companies do not last forever – other investors or other bigger companies acquire them. Others build their businesses until retirement age, and then pass on their businesses to families, or simply close up shop. Whatever the case may be, you need a good business exit strategy to preserve the organization you built and the money you earned because of it.

Traditional Business Exit Strategies

Buying out a business

Sales are done typically within a company. A co-owner buys his co-owner’s shares in the company, or a family member buys the company. Sometimes, a trusted manager may also be offered to buy out the company from its original owner.

Business acquisition

This happens when an outsider buys the entire company, for instance, a larger company buys a smaller company. You’ll need a superb team of negotiators if you want to get the upper hand in an acquisition. Companies who acquire smaller businesses usually pay more when they know that the organization has a lasting value. However, don’t make the mistake of assuming that you’ll get the price you want right of the bat.

Mergers

Mergers happen when two or more similar companies combine together to make a single entity. It helps increase market share and value, as well as opens new opportunities for the business. This is typically one of the better business exit strategies because it allows for complete, often slow, transition of company management.

Initial public offering (IPO)

IPOs are becoming increasingly popular as business exit strategies. IPO stands for initial public offering, or the process of making a business available for purchase by the public through the selling of stocks.

Those who consider this exit strategy would need to plan ahead of time, because it’s expensive and meticulous compared to other business exit strategies. However, it can return great profits, as well. Consider the risks before you get too excited- only 7,000 companies in the US are public, and most are not even started by small business owners. Not all companies who offer IPOs succeed quickly.

Non-traditional Exit Strategies

Closing up shop by paying yourself

Typically, owners give themselves large salaries and bonuses until they retire.

Liquidate the business

Liquidation means selling everything about the business, including the products, equipment, and other properties. Although this is not one of the most profitable business exit strategies, it is simply fast and cheaper than the other business exit strategies mentioned here. Proceeds from the sale would be used to pay creditors, and the rest is for the remaining employees, investors and owner.

Picking the best business exit strategies early on could save you from the hassles and the emotionally draining process of liquidating things or selling everything to the highest bidder. It provides you and your business partners several exit routes, which is, in a sense, an added form of security when the going gets tough.