Did you know that only 10% of businesses offered for sale ever sell?
One of the biggest mistakes entrepreneurs can make is to think about an exit too late. When you first begin to think about starting your own company, it’s hard to imagine the end. Most entrepreneurs get so caught up in the visions and plans for the beginning stages of a company that they ignore the benefits of also planning for an exit strategy.
There are a few key benefits of creating an exit strategy for your company early on in your planning process. Having an effective exit strategy can build confidence for your investors. Most investors do not get to see the value of their investment until the company is purchased by another entity or until they call in on their investment. Additionally, having a plan for an exit from your company will allow you to feel confident in your decisions when the time comes to sell it or to allow someone else to run the day-to-day operations, which makes you a more effective leader and decision-maker. Finally, if you determine that the company is failing to reach its goals, you’ll have a better plan to make improvements or exit the business.
There are many different ways to plan for an exit from your business, so here are some of the things to consider:
Acquisitions and Mergers: This strategy involves coming together with another company that exists in the same or complimentary business space as your company or having your company purchased by another company. For many start-ups, this can be a good way to bring together two businesses that can complement each other by working together. It can also be a good way for a larger company to expand its business without recreating the things that your company can bring to the table.
IPO or Initial Public Offerings: For a long time, making a company public was considered to be an excellent way to make money quickly. However, over time, it has become a less profitable option, as it can make your business much more complex as you have to deal with a number of shareholders and issues that can increase your company’s liability. Going public is also costly. Most companies pay about 7 percent spread to investment banks.
Private Sale: Instead of merging two companies, some entrepreneurs plan to do a private sale of their company to a single investor. This requires a little bit more work in finding the right person who has both the knowledge and the desire to purchase the business but provides an opportunity to profit from the sale and to provide payment to investors, as well.
Turning Over Leadership: If the company has been built up strongly, has become profitable, and investors have been taken care of, you may be able to hire someone to manage the company while reinvesting the profits into a subsequent business. Because the ownership remains in your control, you can continue to make decisions for the business without being as involved in it directly.
Final Liquidation: Even the best owners cannot continue to run a company forever. If the market goes under or the unexpected happens, the option remains to liquidate the assets of your company and shut it down. It is always good to have a plan for an eventuality such as this so that you don’t get caught off-guard.
At any given moment, there is an entrepreneur ready to exit a business while there is another ready to buy one. Most entrepreneurs never have the pleasure of a successful business exit. You can achieve a successful business exit by thinking strategically.
While it may seem strange to create an exit strategy as you are creating a company, having a good plan in place actually allows you to manage your company more effectively at the beginning, middle, and end. Your company also becomes more attractive to those who might be interested in investing or eventually purchasing your business. By having a plan to exit or transition out of your company, you can be more confident in your decisions along the way.