According to musician Paul Simon, there are 50 ways to leave your lover. If only you had as many options when leaving your business. Below, we give you five. But before that, let’s discuss the importance of a business exit strategy and why you should start planning yours.
What is a Business Exit Strategy?
Just as you create a business plan when starting, you also need to map out its conclusion. A business exit strategy helps you make the most of your business. If your company is successful, an exit strategy helps you make a substantial profit upon leaving. If it isn’t successful, an exit plan can limit your losses.
You can exit your business in several ways. Take a look at the following choices and weigh the pros and cons and how they apply to the nature of your business:
1. Sell or Transfer to a Family Member
Despite wanting to take a step back from the daily operations of the company, some business owners want their enterprise to stay within the family.
Pros:
- You have plenty of time to groom your successor
- You can keep the transition smooth, with as little disruption as possible
Cons:
- Choosing your successor can bring a lot of strain to your family
- Business partners or employees might not support your choice of successor
2. Merger & Acquisition
A larger company that can benefit from your services may choose to purchase your company to “merge” the two. Firms like thedvsgroup.com help in this exit strategy.
Pros:
- You can sell for a high value because the buyer needs your product/service
- If your business is struggling, a merger can help save it and keep it afloat
Cons:
- This can lead to job cuts as the new management takes over
- It can be challenging to consolidate one company’s culture with another
3. Transfer to Employees Through ESOP
Employee Stock Ownership Plan (ESOP) is a stock equity plan that lets employees acquire an ownership interest in a company. Simply put, you’re allowing employees to buy shares or stocks in the company.
Pros:
- Encourages employees to do what’s best for the company
- The business will be in the hands of people familiar with and enthusiastic about it
Cons:
- Setting up the company structure under ESOP is difficult and expensive
- Sale of any business assets and other decisions need the vote of all participants, which can take some time.
4. Sell to the Public via IPO
The Initial Public Offering (IPO) exit strategy means selling stock to the public, turning the company from being privately owned to being publicly owned.
Pros:
- Going public is one of the most profitable exit strategies
- It allows for high valuation on ownership interest
Cons:
- IPO is one of the most difficult and expensive exit strategies, requiring certain conditions
- Small-to-medium businesses are unlikely to succeed
5. Liquidate
If you don’t find an exit strategy that suits your company, then liquidation is the best option. This means selling your assets, paying your debts, and closing your business.
Pros:
- The process is simple and can be accomplished immediately
- This move enables you to get your cash right away
Cons:
- This option offers one of the lowest ROIs
- This will result in people being out of jobs
Deciding to leave your business isn’t easy and can have several emotional and financial implications. That is why you must consider the advantages and disadvantages of each strategy and make the choice that best protects your interests and that of your company and employees.
