6 Exit Strategies For Small Business Owners - TechGeek365

6 Exit Strategies For Small Business Owners

exit strategies for small business owners

One of the things business owners should consider early on is their exit strategy. In fact, you should have one before even forming the company via a formations agent. Even if it’s a one-man business with no investors involved, they still need to know there’s a way out if things don’t work out. In addition, they need to have created a strategy for that early on and calculated the money they can get out of the business.

You might be wondering why you need to even consider that if you’re confident in your abilities to build and run a profitable business. Well, the most important reason is that you don’t know what’s going to happen next. The market can change and so can your interests.

At a later stage of your company, you might realize there’s nothing else you can give to that specific project, idea or business model. That doesn’t mean you’re done with entrepreneurship. It just means you’re ready for something more or something different.

Serial entrepreneurs do that all the time. When one business explodes, they don’t find joy in running it anymore. So they might as well get their money back and let it be while moving onto something more exciting and even profitable. That’s why they have a proper exit strategy in place from the very beginning.

If you’re ready to take that important step, here are some strategies you might consider:

Keep The Business In The Family

This one sounds amazing as it gives the business a chance to be sustained and even scaled, to stay in the family, and to earn more in the future thus making the lives of family members better. If things go well, it can even provide for the next generation.

However, this is a double-edged sword. While you’ll have people you trust that will care about the business, they might also completely lack the necessary skillset and mindset. Which means there will be a steep learning curve which might cost you months of training and taking decisions together until you make sure it’s okay to leave all business aspects in the hands of one or more family members.

Set some time aside to think this through and discuss it with the family member you’re going to transfer the company to. Decide whether you want to leave any work related to the business behind, want to be involved in the decision making, or will retain ownership as a passive owner.

Sell To An Employee Or Co-Worker

If you care about the business you’ve built over the years and want to make sure it’s in good hands, you might consider selling it to a trusted individual you’ve already worked with, such as a loyal employee or a co-worker with strong leadership qualities.

In the case of an employee, you must choose wisely. People tend to react differently to a crisis, when managing more money, taking big decisions or when given more power. Often, you can’t know whether a person is ready for that until you see them in action. Unfortunately, some people might be ideal employees – hard-working, ambitious and loyal. But they might not have what it takes to manage big projects or a whole company.

If you decide to sell the business to a co-worker, though, things become a bit clearer. The person is already involved in the ownership. He’s familiar with the processes in the firm and with all the other relevant details about the company. The clients know him, he’s dedicated to the business and will be motivated to do a good job when given more responsibilities, such as ownership.

Initial Public Offer

The Initial Public Offer, or IPO, happens when an entrepreneur has full control over their company and decides to sell shares of the stock. While that’s not a common scenario, it can be highly profitable.

Sell Shares To Another Company

Now here’s an exit strategy you should plan a year or even two before executing. If you’re looking for a solution that is a good return on investment and yet don’t want to keep the company in the family or have friends or employees involved in any way, then you can sell it to another business.

That often happens through networking and finding a big corporation that’s interested.

Using this strategy will result in your business will becoming part of something bigger.

Shares can be sold over a period of time, and you can still take part in the operations on a daily basis if you decide to during this process.

Liquidation

You might need to liquidate due to external events, because you’re simply done with the business, or just want a quick solution to close down it’s doors and sell all you have to then invest it in something else.

There are some negatives to this exit strategy, though. There’s not a good return on investment because the only profits come from the inventory and any other business assets, but over time these will have lost some of their value.

There is another way to do this, which leads to less loss. That’s liquidation over time which includes extracting the profits over the years. That leads to consistent cash flow. This strategy will help you live well now but won’t guarantee a better future for the business.

Closing The Business

Finally, if none of the options above suit you, and if there are no assets to liquidate and no debts, loans or other obligations to take care of, you can simply shut down the business operations.

Your exit strategy might be one of the key decisions in your career. So, it’s worth preparing for it properly. Here are some things to do before you leave your business behind:

  • Set objectives – When writing your business plan, set specific goals on what you expect the business to turn into and what profits you want to see from it. Give each goal a deadline and plan the exact ways you’re going to achieve it. This will give you a path to follow and will also help you choose the right exit strategy;
  • Stay true to your vision – Many things will change once you register your company and start operating. Unexpected things will come up, tempting opportunities will present themselves. You might listen to somebody else’s opinion, take action based on temporary changes in the market, or else. But that doesn’t mean the business should be affected negatively as a result of an outside factor. That’s why it’s worth defining exactly what your expectations are. You need a vision. Maybe you just want to build a lifestyle company which will make as much money as it needs to keep operating and allow you to leave your current lifestyle. Nothing bad with that. It just means you won’t be selling it anytime soon;
  • Consider the financial and legal aspects – Few entrepreneurs enjoy dealing with the money part and legal issues when selling or closing a business. But these are crucial. Some transactions might be so complicated and cost you more than you know, that it would simply be smarter to choose another exit strategy because of its flexibility and simplicity. So, keep that in mind too.
  • Give your business a chance to grow – A mistake many small business owners make is to underestimate the potential of their company. Even if you’ve been having cash flow issues for months now and you can’t seem to get investors interested, or if a new competitor led to losing your biggest client, that doesn’t mean your time is over. A business can die for a little while just to grow quickly right after that. The point here is to take a closer look at the financial planning and the potential of the business before you hand over the ownership to someone else;
  • Know how much your company is really worth – Last but not least, before leaving your business, know exactly how much it’s worth. Simply calculating assets and adding the revenue won’t do. Correct estimation should be based on a number of factors, such as sales and profits, the owner’s salary, changes in the industry, the age of the business, etc.

Now that you know what to do before and during selling the business, you’re ready to decide what exit strategy best suits your needs and next goals.

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