At some point in their careers, business owners will have to decide when it is time for them to sell their business. The reason for selling a business may vary – business owners may plan to retire soon or they may have found a new opportunity in a different location. Or, they simply experience burnout and want to make a lifestyle change. But before business owners push through with selling their business, they should look into their business exit strategy or the method in which they plan to sell ownership of their business.
While a business exit strategy is ideally developed during the business planning stage, even before the business is launched, things may change over the years and many factors may lead to a change in their exit strategy. The process of selling a business, including exit strategy planning, is a complex one so business owners may need to get help from business brokers to guide them through it.
Below are the common business exit strategies business owners may consider when selling their business.
Third-Party or Open Market
Third-party or open market selling involves selling the business to individual buyers who want to become business owners. In this type of exit strategy, a team of professionals, including a business broker, can help owners of the business find the right buyer for the business. Business brokers will create the strategy to promote the business, screen potential buyers, structure a deal, and manage the details of the transaction.
Merger and Acquisition (M & A)
This type of exit strategy involves merging with a competitor or being bought out, if the acquiring company is the larger company. Competing businesses often see mergers and acquisitions as an opportunity to get rid of their competition or as a quick route to expansion.
In a merger, two similar business entities combine to form a partnership, having equal authority in the new company, while in an acquisition, the acquired company ceases to exist and its assets are taken over by the acquiring company.
Initial Public Offering (IPO)
Also termed as going public, an IPO is the process of selling all or part of the business to the public through the issuance of stocks. Before an IPO, a business is considered a private entity, where shareholders are limited to a small number of investors. After an IPO, the business becomes publicly listed. The IPO process can take a long time to complete and would involve heavier documentation compared to other exit plans.
Business owners can offer ownership of the business to the next generation of managers or employees. This is an ideal choice for business owners who wish to see their business continue to operate at the hands of the people who have first-hand knowledge on how the business operates, its corporate goals, and culture.
Family-owned businesses would typically have a successor groomed to take over business operations once the main owner retires. This type of exit plan is ideal for business owners who want to see their legacy live on and who also want to take an advisory or consultancy role after retirement.
Liquidation is a common exit strategy for small businesses, businesses which do not have a capable or interested successor that will take over, or business which may be near bankruptcy. When owners choose to liquidate their business, assets may be marked down to ensure a faster sale. When a company is liquidated, all creditors are first paid off and then the remaining amount is divided among the shareholders.
Mapping out an exit strategy for a business takes due diligence and planning. Business owners can benefit from hiring a business broker during this stage of selling their company not only to minimize stress but also so they can obtain the highest sale value.