Plan for Succession: Exit Strategies for Your Businesses
Entrepreneurs often live and focus on the highs and lows of launching a new business venture. One key aspect that they often forget is that a decision made on day one of the business can have a huge impact on its last day.
Building a BusinessWhile building a business worth a fortune is vital, making sure you have an exit strategy and a way to pull the money back out is just as important. For entrepreneurs who are focused on planning ahead (and for those who are not, but should), below are five basic exit strategies available to Pleasanton business owners.
Common Exit Strategies1. The Liquidation: A commonly passed-over exit strategy is liquidation, or simply calling it quits, closing the doors, and selling all the assets. Keep in mind that proceeds from the assets that are sold off must be used to pay off the business's creditors and the remainder is distributed to the shareholders.
2. Selling to a Friendly Buyer: When emotional attachment has anchored your succession planning vision, another option is to pass ownership to someone who believes in the venture and will preserve your legacy. Those interested may include children, employees, customers, or other family members. Not uncommon in this type of sale, the seller finances the transaction and lets the buyer pay off the debt over time.
3. The Acquisition: One of the most commonly used exit strategies, acquisition involves negotiating a price with the buyer who is typically not the actual owner of the company acquiring your business. If the right acquirer is chosen, you can walk away with a hefty profit from the sale. If the acquisition goes sour, the combined companies can self-destruct. Sometimes acquisitions come with non-competes and other contracts that limit your ability to engage in similar work.
4. The Initial Public Offering (IPO): In the U.S. alone, there are millions of companies, with only about 7,000 of those being publicly owned. When a company is funded by professional investors with a track record of successful IPOs, this option may be possible. Keep in mind, however, that these investors and not you will own a majority of the company. Unlike an acquisition, where you are seeking out one good suitor, an IPO requires courting hundreds of analysts.