The Profitable Exit Strategy – Entrepreneurs are great starters by nature. Starting a business is exciting, emotionally rocky, intense and it often requires serious strategy and innovation to be successful. Exiting a business is different than starting one and for some entrepreneurs it can be challenging letting go of that deep emotional attachment that they developed with the business. However, exiting correctly can be just as important than starting a business correctly in terms of profitability.
When you’re drawing up a business plan, it’s important to describe the steps that you’ll take if your company fails or if you abandon it for another pursuit. All too often, entrepreneurs neglect to develop exit strategies. Perhaps some of them feel that doing so would be inviting bad luck or showing a lack of confidence.
To the contrary, exit strategies are signs of prudence, even wisdom. Such a plan should make your final days at your company less stressful. Moreover, many investors will look for a clear exit strategy before they’ll agree to bankroll a business. Below are a few strategies from which you can choose.
When you harvest your business, you shut it down and liquidate its assets for cash. It’s also known as the ‘liquidating event’. You can use those funds to pay back your investors and creditors, and you can then keep the remainder for yourself. Be aware that you’ll probably have to fill out your state’s dissolution forms in order to make the termination official.
Maybe you’ll want to retire or go into another line of work at a point when your business is still profitable. If so, you could sell it to another entrepreneur. This option will seem especially attractive if you have many devoted customers and/or staff members whom you don’t want to send to the unemployment office. What’s more, by selling your business, your company might last for many decades afterwards and thus become a part of your legacy.
Of course, if you’re concerned about the long-term health of your company, you’ll want to select a buyer with a record of strong business success. On the other hand, if you merely want to unload your business as soon as you can, you could just sell it to the highest bidder.
Further, to ensure that the bids you receive are as substantial as possible, try to put your business up for sale at a time when it’s experiencing revenue growth.
Let’s say that you have a friend or a family member who’d like to take over your company, but that person lacks the capital to purchase it outright. Under such circumstances, you could give him or her its rights of ownership. In exchange, he or she could pay you a monthly lease or send you a certain percentage of the profits every so often until the debt has been paid off in full. Before you transfer your business, however, you should have meetings with your attorney and your tax accountant. That way, you can draft a binding contract, and you’ll learn how this arrangement will affect your tax situation in the future.
4. Letting Another Company Acquire Your Business
If your business is still performing well, you could also allow a larger company to acquire it. The drawback here is that it can take a longer period of time to find a business to purchase your company than it would to find an individual buyer. On the plus side, you might be able to negotiate a significantly larger sum of money through the acquisition route ― especially if more than one company is interested in yours. After all, many corporate leaders have deep pockets, are hungry to grow their brands, and would hate for their competitors to snatch a valuable opportunity away from them.
5. Leave of Absence
This is not discussed frequently but it’s not a bad strategy if you just want a break or if something comes up in your life. Founders of billion-dollar companies do this all of the time. The stress sometimes piles up and they just need a break so they’ll take months and sometimes years off. Nu Skin founder Blake Roney took a leave of absence for three years after 28 years of running the company. The CEO of the Philadelphia Phillies recently took a leave of absence for medical reasons. Whether religious, or medical there are many reasons you can take a leave of absence. The disadvantage with this strategy is your business has to be in order and profiting very well, or it can be a devastating blow.
You worked hard with your company. Take the exit that’s the best for the company, whether if that’s going after the most profit or taking the strategy that will keep your legacy lasting the longest. Do what you think is best, but exit strong.