What Is Your Business Exit Strategy?

One day years ago, you or someone else started the business you currently own or manage. Now, depending on your attitude about the business, your age, and your personal priorities, it may be time to develop a strategy to exit your business. Frankly, it’s just as important to have a good exit Ssrategy as it is to have a have good growth strategy -- otherwise what’s the point of building your successful business?  As someone once famously said, "when I’m on my deathbed I doubt that I’ll say I wish I could have spent more time at the office!"

So, what are your personal goals for the next 10 years or so?  Do they involve continuing to own and grow your business?  For some people, this is exactly what they want and they have no plans to retire.  But what would their reaction be to a lucrative offer to buy their business?  If they sold, then what else would they do with their lives?

For the majority of business owners however, the desire to retire, do something else, work less, have more fun, spend more time with family, etc. is very real.  If you are in this category, how can you plan effectively to transition your business one way or another?

This was a recent discussion topic with a group of Presidents and Owners.  The individual who raised it basically said he was burned out, slogging away in a down economy wasn’t much fun and he was seeking feedback and suggestions on how to take the first step to transition out of his current business, in other words Develop an Exit Strategy.

Following are some options to consider:

Sale: This is the most obvious and easiest way to exit your business.  Selling your business is typically a deal between two parties, it doesn’t involve more complex strategies like doing an IPO, which is governed by numerous governmental regulations.  The difficult part of selling is Valuing the business.  There are many rules of thumb, but probably the best approach is to hire a professional to appraise your business so the price is reasonable for both seller and buyer.

Merger: The second approach typically taken is to merge your business with another complimentary business.  The key with this approach is to have a strategic fit between the two businesses. One drawback of a merger is that you may not be paid cash for your business and have to accept stock in return.  This may require your active participation in the newly merged company to ensure its survival and growth of asset and stock value.

Initial Public Offering (IPO): If your company is large enough and valued highly, then an IPO may be an option.  However, beware of the time and costs associated with executing a successful IPO, the vagaries of the IPO market in general, as well as the dilemma with actually getting your cash out of the business post IPO.  A good rule of thumb is if your business is worth less than $50M then find another avenue to exiting your business.

Buyout: Another way to exit your business and achieve liquidity is to be bought out by someone who will step in and run your business.  Typical buyers might be a team of people in a similar business, or even some of your current employees, who are energized by owning and operating your current business and believe they can increase its value in the future.  A Buyout deal is typically dependent on the performance of your business before and after the deal is done.  In this case, you may need to continue working in the business for sometime so an effective transition to new ownership is accomplished.  It’s to your advantage to seek a Leveraged Buyout, where the buyers come up with the cash to buy the business outright from you by leveraging future revenue.  In this case, you may take on the debt of the buyers if they can’t find a bank or investor willing to underwrite the deal.

Liquidation of Assets: This is sometimes a great option, particularly if your business is debt free and you can’t find a buyer or merger candidate.  The negative, of course, is that you will be shutting down your business.  If your business has considerable assets that you could sell for a reasonable price and no other options are available, then this may be viable option.

In any case, take the time now to consider what your exit strategy is and how it aligns to your personal goals.