A Primer on Exit Strategies

Starting a business can be wildly exciting. Running a business can be a truly fulfilling experience. But what happens when it’s time to wrap things up? There are a multitude of options out there for winding down your involvement in your business, this article will discuss just a few.

Selling Your Business
This option is usually an attractive path for business owners, as it allows the current owners to cash out and pursue other opportunities. Many business owners have a tendency to overestimate the value of their businesses, and underestimate the complexity and the amount of effort required to pursue a sale transaction. In many cases, negotiations can drag on for a prolonged time only for the deal to fall apart.

If you’re thinking about selling, it’s best to start preparing several years before a potential sale. You’ll need time to ensure your financials and other business data are in good shape. You might consider doing a sort-of internal due-diligence, where you, or your consultants, subject your own company to a mock due-diligence process to identify weak spots that you can address before the real thing comes along.

Keep in mind that buyers are primarily interested in the growth potential of your business – what will it be worth several years from now – as opposed to past results. The most successful business sales will connect buyers and sellers who understand each other and the industry well, and who are reasonably compatible with one another.

Slow Rundown
This option is attractive because it allows you to maintain your autonomy and slowly pull back from your business over an extended period. This option may include cutting back on your business development efforts, or not accepting new customers at all, and slowly trimming down your customer base over time. This option may not result in the best return on investment, because the company’s assets and customer relationships will likely be worth significantly less at the end of the rundown. The slow rundown (and turn out the lights, next) are best suited for small and micro-businesses, especially service-based businesses.

Turn Out the Lights
In this option, you keep running your business until you simply can’t anymore. It’s probably not the best choice for the owners’ return on their investment, and it leaves employees and customers in the lurch when the day comes, but the owner does have the benefit of keeping their autonomy and income levels to which they’ve become accustomed.

Other Options
As I mentioned, this article is only a brief primer on a few common exit strategies. There are plenty of others, some of them more creative such as Employee Stock Ownership Plans (ESOPs) or an initial public offering (IPO).

No matter which exit strategies you’re considering, you need to have good financial and other business data to make the right decisions. Schreiber Accounting and Advisory can help Outsourced Accounting services. Even if you’re years away from a transition, that’s all the better to give you time to address challenges and maximize the value of your business. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice