How to exit the business and return the money that was invested there? Choosing a strategy in advance allows you to get the maximum income. In this article, we will design the exit plan for business and will analyze the best strategies.
Why does a business need an exit strategy?
An exit strategy is a business development plan developed in advance to withdraw investments from it at the time of maximum capitalization, which allows you to exit the business on more favorable terms. The reasons for exiting a business are various: the need to invest in another project, business fatigue, lack of resources necessary for further development, or simply the need for money.
Owners develop an exit strategy based on what they hope to ultimately get out of the business. Exit strategies can vary by type of investment. In the case of investments in equity securities of non-public companies, examples of exit strategies include initial public offerings, private placements, divestments of businesses, distribution (to investors) of interests in investees, and disposals of assets (including the sale of assets investee with subsequent liquidation of this investee). In the case of investments in equity instruments traded on the open market, examples of exit strategies include selling the investment in a closed offer or on the open market. In the case of investments in real estate, an example of an exit strategy is the sale of a property through specialized dealers in the real estate market or on the open market.
What is the exit strategy template?
There are the most common exit strategies:
- Business liquidation
You liquidate the company and sell its assets (office or expensive equipment). For a small business, especially if all the work is “tied” to the owner of the company, liquidation is sometimes the only option. Try to reorganize your activities so that you can sell not only assets but also the company.
You transfer the company to your direct heirs. This will allow you to become a mentor to your successor and perhaps even influence decisions. However, working with relatives can be quite difficult because of emotions. In addition, there may be problems with shared ownership.
- Sale of business to employees
Your employees may be interested in buying a company, who have a chance to get an already established and familiar business. This can be done through a share sale program to employees of the company, which will allow them to acquire ownership. You can also sell the company to one of your managers.
- Selling a business on the open market
At a certain point in time, you simply put the company up for sale at the price you would like to receive. However, you will have to spend some time “pre-selling” the business to make it as attractive to potential buyers as possible.
- Sale of business to another company
Firms buy companies for a variety of reasons, both to quickly expand and to get rid of a competitor. You need to select a potential buyer in advance, position your company correctly and convince the buyer that your business is worth exactly as much as you ask for it.
- Initial public offering (IPO)
Of course, this is an exit only from companies with large turnovers. Issuing and publicly selling company shares can be very lucrative. It is important to adequately assess the value of the company. However, depending on how the IPO is structured, you may not always be able to withdraw the capital. Shareholders may demand that their money be invested in expanding the business.