Four Most Common Exit Strategies For Entrepreneurs
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Setting up and expanding your business is a real struggle. It’s a whole new world of learning and discovering. But many start-ups do not have any long-term goals and they do not know where they want to take their business. Ultimately there will come a time, when you want a business to end and you have to make important decisions. That’s where the market exit strategy comes in.
What is exit strategy?
All businesses have a life-cycle; they start, grow, mature and at a certain point a decision needs to be made about business expansion or the direction your business is heading to. The exit strategy is an important part of the business plan and to avoid costly mistakes and limited options in the future, the plan should be geared towards the exit strategy from the beginning.
According to BizBuySell.coms 2017 Annual Insight Report, 9,919 closed transactions were reported by brokers in 2017, a nearly 27 percent increase from the 7,842 reported in 2016.
Reasons for exiting a business
Everyone starts a business with no thought of exiting it. But not everyone can become Bill Gates or Jeff Bezos. “The reasons for exiting can be, business failure, market uncertainty , decreasing profit, increasing competitions, changes in life-goals, deals falling with investors or customers and constantly changing business model or there can be reasons like, you might have reached a certain goal and want to enjoy the rest of your life. You may have acquired a new hobby or lastly, you want to spend more time with your family.” Says Sudhanshu Ranjan, founder of Innovative Machineries.
By exiting intelligently, you can maximize financial return for shareholders and investors and leave your venture in the hands of people whom you trust. This will also give you peace of mind to move onto the next phase of your life.
How to exit from a business?
A business owner should start planning their exit strategy in advance to ensure a successful result. A key aspect of any exit strategy is business valuation. You should document an exit strategy in your initial business plan. Here are few common ways to exit your business.
- Selling your business
Selling your business is an important decision for any business owner. It's not easy to do it without proper advertisement and help of a broker. “According to me, the best time to sell your business is when your sales are increasing and profits are high. Do ask yourself, why, when and what are you selling and whom are you planning to sell.” Says Girish Ahirwar, Co-founder of Maxtron Innovations. Your current employees or manager might be interested in buying your business and this can be your chance to exit.
- Keep your business in the family
Many business owners wish to pass on their legacy to their family members. Especially if you have spent many years in developing and growing your business. “Selling your business might not sound great to you. Also it will take its own time,so it is better to pass on your business to someone you can trust. This will also allow you to keep an eye on your business and you can be a part of advisory committee.” Says Suraj Singh, owner of Tara constructions. This way your legacy can live and will provide employment and living for your heirs.
- Merging and Acquisition
It means your company can either be bought by someone or merges with a company with similar products or ideas. For example, in the year 2014, flipkart acquire Myntra in an estimated Rs. 2000 crore deal. The best thing about this exit strategy is that you can negotiate the price. Though this process can take a long time. According to BizBuySell, Only 20 percent of the businesses listed for sale are actually bought. So in this type of strategy, you must have a plan B.
- Initial Public Offering
This exit strategy might not be suitable for small businesses but it can be a viable strategy. You can sell your business to the public. For this option, business conditions need to be just right. Also IPOs are very rare; only about 7,000 out of million companies in the U.S are public, according to Fundera website. Becoming a public company is a long and expensive process. They have much higher compliance and reporting standards.
Whichever exit strategy you choose, you have to start working on it. Plan it in advance and try to maximize your returns.
This article was originally published in BusinessEx by Sanjana Surbhi.