If you are a business owner or entrepreneur, there’s one important detail you don’t want to leave out of your business plan: an exit strategy. While this term and approach may have negative connotations or even seem illogical to consider in the early stages of your business, it’s crucial for the future of your company to have a plan for transferring ownership down the line.
What Is Business Exit Planning?
Business exit planning is how business owners, entrepreneurs, or investors who have contributed capital in a company transfer ownership of or otherwise reduce or liquidate their stake in a business.
If the business is successful, an exit strategy can result in significant profit for the owner. If the business is struggling, an exit strategy helps the owner limit losses.
The Importance of Exit Planning for Business Owners
Business owners and entrepreneurs should develop a comprehensive business strategy in his or her initial business plan. There are several benefits to business exit planning:
- Providing long-term direction to key stakeholders
- Making your business more attractive to potential investors or buyers
- Supporting business goals and outcomes
- Ensuring a seamless transition to new ownership
Developing an exit strategy requires a deep review of your financial data. Consider hiring a certified public accountant (CPA) to conduct a full analysis of your business finances.
5 Exit Strategies for Business Owners & Entrepreneurs
The best type of exit planning strategy for your business depends on several factors, including your values, your goals (both personal and business), the financial health of the business, and how much involvement (if any) you want to retain in the company.
Start by exploring these five common small business exit strategies. If you are not sure which exit planning approach is right for you or want to discuss your options with an experienced professional, ask an experienced CPA for guidance.
Merger & Acquisition (M&A) Deal
A merger and acquisition (M&A) deal is an attractive exit strategy for many business owners. Through the M&A process, you would sell your business to another company (such as a competitor or an investor). After negotiations, they would buy your business and then merge the two companies into a single entity. This process allows you to set your own terms and control price negotiations.
Initial Public Offering (IPO)
Initial public offerings (IPOs) can be an extremely lucrative option for businesses that fit the requirements.
IPOs are ideal for business owners, entrepreneurs, and founders that can convince investors and Wall Street stock analysts that the public would be interested in your company. It involves taking your business public and selling shares in the company as stocks. If your business can meet regulatory requirements and navigate the intense outside scrutiny that comes hand in hand with this type of exit strategy, it could result in a significant payout.
Having active employees or management purchase your business is a method that is ideal for owners who want to support a legacy and who have employees they can trust to run the business. This process involves finding workers who are well-equipped to manage the company and ensuring your employees have the collective ability to front the money or secure credit for the purchase.
If your family is closely involved in your business operations, it may make sense to pass your company onto them. A family succession exit strategy, also known as a legacy exit, keeps the business in your family or among close friends. It is especially appealing for business owners who want to pass on the business to his or her children.
A liquidation strategy is one of the fastest and simplest exit planning strategies for businesses to execute. During liquidation, you close business operations and sell all assets. Profits made from liquidation will first go towards paying any debts and shareholders. Any leftover funds go to the former business owner.
For Business Exit Planning Guidance, Contact Fisher, P.A.
At Fisher, P.A., our team of experienced accounting professionals are ready to answer your questions, walk you through our business accounting services, and show you how to create a seamless exit plan. We cater to businesses of all sizes throughout the United States, aiming to alleviate the burden of accounting off your shoulders.