5 Exit Strategies to Consider When Leaving Your Business

We all think about our brand and spend hours planning our business initially, but most never consider when and how we will exit the business. Let alone think of this at the beginning when we are still in the development phase. Yet, there are several reasons you should consider your exit and why you should consider it from the start.

Whether your business is successful or not, there are many things to consider when leaving your company.

What is an exit strategy?

In a nutshell, it’s your plan when it comes to your exit from your business. Whether that be a sale, a merger, or a liquidation, your goal should be considered before you start, and it should remain fluid through the life of your business. You also need to assess market conditions and adjust accordingly.

Today, we will discuss the five most common strategies: the merger, the acquisition, the friendly sale, initial public offerings (otherwise known as IPO), and liquidation. Now understand, these are the five most common, but not the only. It could even come down to bankruptcy.

Why is an exit strategy necessary?

You’ve heard the saying that it only takes a few seconds to make a first impression; well, we also need to understand that your last move sets the tone for your legacy. And your company’s brand is just as important as your personal brand, especially when it comes to determining its worth. You’ve invested a large part of your life and money into your business, and you don’t want a poor reputation to keep you from capitalizing on your hard work. 

Just because you are planning for your exit in the future doesn’t mean that you have doubts or think you will fail; it just means that you have put together a clear set of objectives and have a plan for when you meet those objectives.

So, you’ve built a brand, and now it’s time to leave; what do you do, and what do you consider at that time?

There are many things you will need to keep in mind when considering your exit. 

For example:

  • Objectives – If you understand the objectives from the start, you will be able to plan accordingly.
  • Timeline – An understanding of the timeline will help you stay on track. It’s never too early to start planning your exit; as a matter of fact, you should always consider the end right from the beginning.
  • Intentions – What is your vision for your company’s life after you. Will you sell it to family, management, or employees? Do you want to stay involved in its operations, or do you want to make a clear break?

Here are 5 Exit Strategies to Consider When Leaving Your Business

Merger

Mergers are when two companies come together and become one; however, you would be expected to stay in a managerial role overseeing the daily operations. This strategy lends itself towards a gradual transition over time; however, it is essential to note that you will not have the authority to implement a change like you had in your company.

Mergers typically take place within the same industry and will increase the value of your business as your business becomes more profitable due to its increase in size. The benefit of a merger is that you will have an opportunity to grow even more significantly in your new role. However, this may not be the best strategy if you look to retire and step aside entirely. 

Types of mergers

  • Horizontal – When both businesses are in the same industry
  • Vertical – Both companies are part of the same supply chain
  • Conglomerate – The two firms have nothing in common
  • Market Extension – The businesses sell the same product but to different markets
  • Product extension – Both companies will grow more together

Merger Examples

  • America Online and Time Warner
  • AT&T and Bell South
  • Exxon and Mobil

Like any other business deal, you must do your due diligence and make sure that a merger is right for you and fits your values and vision.

Acquisition

An acquisition is when one company will outright buy your company. As the seller, you will be giving up full ownership of your company. The purchasing company is usually a competitor, and they are often willing to pay a higher rate.

Because this is an outright sale, you must be ready to give up all involvement, and you may even have to sign a non-compete.

An acquisition can be friendly or hostile. However, it is likely to be friendly if you plan for an acquisition. Still, you should note that an acquisition process can be lengthy.

Acquisition Examples

  • Amazon acquired Whole Foods
  • Microsoft acquired LinkedIn
  • Disney acquired 21st Century Fox

Friendly Sale

You may be planning your retirement, and you may want to see your business live on under someone else’s ownership. In many cases, you can sell to someone you know as an exit strategy. A benefit of this is that it is likely that your business will continue functioning with the same core values.

During a friendly sale, you may sell to a family member, typically a child, a friend, or an employee. It could even be a colleague or a customer.

However, consider the drawbacks before selling your business to someone you know or are acquainted with, as this could lead to resentment. You don’t want to jeopardize personal relationships over your business. Disclose things like liabilities and the profitability of your business before a family, friend, or acquaintance buys it from you.

This is a great option when considering your legacy, as you can mentor your successor along the way. You could even hold an advisory role and transition out over time.

IPO – Public Offering

An IPO or Initial Public Offering is when a public business gives up part ownership to public stockholders. This is more common in larger companies. You may have to give up some or all company control when going public. It is also important to note that going public takes a significant amount of time and money, so if you want a quick exit, this may not be the strategy for you.

IPO Examples

  • Facebook
  • Visa
  • General Motors

Liquidation

Liquidation is often the last resort to a business that is struggling to survive. They balance the value of their assets against their debt to determine if this is the right move. When selling off your assets, you need to understand that you will be selling them at a discounted rate, and the proceeds will go to your creditors before you or your investors.

This strategy is quick, down, and dirty, as you simply sell off your assets, pay off your creditors, and lock the doors. This strategy can not only damage relationships with your creditors, but it can damage relationships with your employees and your clients. It can also damage your reputation and, therefore, your legacy. 

So, what’s the best exit strategy?

Well, my favorite response is, it depends. It depends on a few things, like involvement; how much do you want to be involved in the business after the transfer of ownership? Needs, what are your financial obligations? Or valuation; what is your company’s worth?

Most importantly, you need to consider what is best for you and your business.

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