When you build a business you should always work out an exit strategy ahead of time. You may become ill and not be able to continue running your business. You may plan to sell to a competitor and make a lot of money towards your retirement. You may not be able or willing to take your business to the next level. You may have tied up a lot of money in your business and need to access some of your capital later on. Whatever the reason for selling in the future it pays to plan ahead.
If you are a startup you should look to include your exit strategy in your business plan. Even if your business plan changes over time, you at least have a rough plan when the need comes. Some business startups are set up to become attractive to a big fish that will acquire them, this is especially common in online and tech businesses.
Example of business exit strategies
1 Acquisition
This often results in a merger as the company looking to buy you out will often want to incorporate or merge your business’s services or products into their existing business.
The best part of an acquisition is it usually means your business will be valued above market valuation. We see this in silicon valley acquisitions all the time. They don’t want your business to be sold on the open market and risk it being snapped up by one of their competitors. Often a bigger business will buy you out before you become serious competition to them.
Some businesses might want to break into a new market sector, and the quickest way to do this is to buy you out and take over an established business already doing well in the sector they want to compete in. They can gain all your sector knowledge, staff, and customer base in one go.
If this is your end goal then you need to build your business up to become as attractive as possible to a larger competitor. You can research at the very beginning the main players in a business sector and look at what they are not offering. You should build a solid niche around these services or products and when the big companies wake up and realize they need to offer the same services rather than start from scratch you suddenly become a very attractive option. They may pay more than your market value but they are saving time and resources in having to build from scratch and they usually have the capital to take your business far further than you can and within a much shorter time frame.
2 IPO
Some companies get to a certain point and then they take their business public. If you can build your business up to this stage then you can sell out to venture capitalists and big money managers who know how to take you public. You could IPO yourself and then sell your shares afterward as an exit strategy. You may be required to sell your shares over time as opposed to when the company goes public, so factor this in.
3 Franchise friendly
Maybe you want to set up a restaurant that you could build up from scratch, and make it very easy to franchise in the future. You could sell out to someone that buys businesses that are ripe for a franchise.
4 Sell to your employees
Build a business with a fantastic team of competent employees that really know what they are doing and love their jobs. There may come a stage where it is so well run that you are not needed anymore and you could look at selling part of, or the entire business to your management team.
We wish you the best of luck with your business journey and we also hope that you have enjoyed reading this article and found it helpful. We would be very grateful if you would kindly share this amongst your friends. Thank you.
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