Every business owner needs an exit strategy. It allows the business owner to step back from day-to-day operations, create a money machine that supports the owner without office visits, or sell the company and pass it down to family or friends. But what is an exit strategy? Here are some common exit scenarios:
A business exit strategy is the plan of a business owner to sell the company to another entity or investors. The idea behind this is to sell the business at a profit, while limiting loss. A business exit strategy is different from a trading exit strategy, which is used when a company’s assets are valued at more than their market value. This kind of strategy aims to maximize the value of a business – whether it’s a small company or a global company – so that a seller can buy up the business in a fast way and walk away with a large profit or a lower loss.
In a world of fast-paced markets, business owners need to plan ahead. While some may consider a business plan the first step to achieving their dreams, most advisors and brokers advise business owners to incorporate an exit strategy into their business plans. Even before the business is up and running, it is a smart idea to set a timetable to track progress toward achieving these goals. When the time comes for you to step down, you’ll be prepared.
When choosing an exit strategy, consider your liquidity requirements. Liquidity is the ability to sell a business quickly. Liquidity is important in any exit strategy, but different exit strategies will offer different levels of liquidity. For instance, selling through an IPO may not be the best option during a recession, while a management buyout might be the most suitable option if interest rates are high. While a business’s value should be assessed, an IPO is risky and volatile for ordinary investors.