The Way Out

If you’re about to launch a business, or have successfully got things up and running past the start-up phase, probably the last thing on your mind would be how to get out of it profitably – in other words, planning an exit strategy.

A wise word from many a successful entrepreneur, however, is to plan your exit strategy right at the beginning, and make it part of your business plan. Review it every year so that you can keep your business on the right track so as to eventually achieve what you are hoping to get out of it.

It makes sense that if you are enthusiastically embarking on your own business, you should have an idea of why you are doing it. Perhaps you aspire to become a billionaire, or you’re hoping to retire early and have time to enjoy the fruits of your labours? Identify your reason and then you can decide how best to attain that ambition in the long term when you choose to exit the business. You need to know how you are going to extract the value from your business when you decide to quit.

So, what are the most common exit strategies available, and the consequences of using them:

  • The “live it up” strategy – great if you’re in to enjoying a racy lifestyle. Instead of re-investing profits, pay yourself a large salary, hefty dividends and bonuses for a number of years, then liquidate the business or sell it for peanuts (there not being much left to sell). You’ll have a few years living high on the hog, but ultimately end up with little or nothing when the business goes under. If there are other shareholders they’ll be annoyed, and you’ll be paying personal income tax on that big salary.
  • Liquidation is an exit strategy, of course – closing up and selling the assets. This is often the route taken by micro-businesses or sole traders. It doesn’t bring much return on investment, particularly if you have few assets, and creditors will have first claim on anything you do recoup. You’ll lose everything you have invested in your reputation and business networks. On the other hand, it is a quick and simple way to divest yourself of a business you can no longer operate for whatever reason.
  • After years of blood, sweat and tears you may well feel emotionally attached to your business. It may therefore suit you to pass it on to a friend or family member (or even a current employee) – someone whom you trust to keep things running as your legacy. You can come to a mutually beneficial financial arrangement, that will enable your trusted buyer/s to pay off the price over time. This only works well if you have a really solid relationship and understanding with the buyer/s, otherwise sparks may fly if things don’t go as anticipated.
  • An alternative is to sell the business on the open market. This is a good proposition if the business is very profitable and has added value in goodwill and assets. Businesses are not easy to value or sell though, and there’s a risk you’ll end up having to take a lower price than you expected.
  • If your business is really worth having, and continuing, a really great exit strategy would be putting it out there as an acquisition – tempting another similar business to buy it. You could either tout your business to a competitor as being a worthy acquisition to expand their own, or risk them buying it just to close it down and annihilate the competition. If you choose the right acquirer and are a good negotiator you could make a good profit on such a deal. If you have employees to consider, though, it might end up being rough on them having to be absorbed by the competition.

Whichever strategy you choose, you’ll find it far easier to work towards it right from when you start up your business. Be like a Boy Scout! Being prepared for the exit that suits you will make it far easier and more profitable to achieve when the time comes to implement it.

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