Exit Strategies for Your Business

Entrepreneurs of several businesses are often merely focused on the entrance and growth strategy. They keep coming with plans for what their product would be, what their marketing would be like, and how will they keep growing the business further for a better return. However, it is not just enough to build a business that is continuously bringing in income; you also have to look at the exit strategy that will be put in motion to get your retirement.

Take it all

One of the strategies that the progressive owners use is to take out all of the money from the business on almost a daily basis. This means that they will allow themselves a large salary, then reward themselves with a huge bonus and if they issue out shares, they also certify themselves to achieve a dividend that is significantly higher than the other shareholders. A lot of the entrepreneurs like to re-invest the profits that their business garners. However, you can try to keep the business small and rather take out a chunk of the profits and keep it for yourself.

However, when you do this, do remember that the money that is supposed to go in your wallet should not be in such a significant amount that it becomes nearly impossible for your business to survive or that you investors start becoming enraged.

Pros

You get to take home a colossal salary which may even allow you to afford the luxury of your choosing. When you take out the money from your business, assuming that your business has been gaining a handsome profit, you get to take home as much money as you want and it can be a lot.

There is no specific processor documentation that has to go into pulling out the money which would take way too much time.

Cons

The way you take out the money could result in negative tax accounts. There can be tax penalties and you might get a higher percentage of tax deductions on the money that you pull out, leaving you with significantly less money than you intended to have.

Also, if you are not too careful you might end up taking out more money than you need to. This means that if you take out way more than your fair share you will leave significantly less money for your business to fall back on in the future. Even though you might not want to grow your business far too much, it will still be useful to have some money to a certain level of growth. You need to keep adding some money, even if small amounts to the business. It can be for renovation of the business, switch to a new place, give appraisals to employees, promotion of the employees, etc. For all of this you will need a steady supply of money coming into your business. Other than that, it is always helpful to have some money in the savings for the business. You may need emergency cash at any time.

Liquidation

The simplest, and the least taken, exit strategy is to simply call it quits. Just strip the business of the money, divide it between yourself and the investors, and then shut it all down. Liquidation means bringing the business to a finish and then distributing the money left and assets to the claimants. This is supposed to happen when the business can no longer operate properly but it has its creditors to whom it owes money. This is one of the best exit strategies since the business will not be left with any sort of debt that the owner may later be pursued for.

Pros

It is an easy and natural thing to do. The owner does not have to overstress themselves with a new rejuvenating strategy. They will not be troubled by the shareholders and creditors.

You will not have to worry about to transfer the control too and whether the person you choose will be able to save the company from dissolving or not. A lot of arguments can erupt from this sort of a process. If you plan on transferring the power to someone close to you, the directors or other top management folks of the business can put forth vehement objection of the move and things could get far worse than they actually are at the current moment.

You don’t have to deal with any sort of longstanding and painstaking negotiations of any sort.when you try to take loans you have to negotiate with the bank, when you decide to merge you have to take the opinions of your top management, when you wish to transfer ownership you have to negotiate with your directors and shareholders, everything but total and immediate dissolving takes a lot of mediation that can turn unpleasant really quick.

Cons

The problem with liquidation is that you will never get the market value of your company’s assets. Due to a majority of your assets going into paying off your creditors and shareholders from the sales of your

assets, you will be left with significantly less money, which will not allow you to benefit from the full price of the asset.

When you liquidate your business, you might be relieved that you do not have to go through a debilitating process of arbitration; however, you need to be aware that this will have a massive effect on your reputation as an owner, a leader, and business. This may be very consequential when you try to come with a new business. It will be much more difficult for you to gain your pool of stakeholders and shareholders.

This might leave a lasting impression on your current shareholders. They might think that you are a “quitter” and may lose confidence in you for the sake of your other business ventures. You might find it incredibly difficult to gain those shareholders back if you ever have any other opportunity. They might even spread the word about the town of your working methods and your backing out of the entire business. This will actually exacerbate the second point that had been made previously. The more your shareholders spread the news of your quitting the business the more difficult it will become to gain investors. The situation can get even worse if the owner does not check with the shareholders and the board of directors.

Selling it off

When you have a business and a vision, you will not be the only who possesses that vision there will be your board of directors, shareholders, managers who will be following in your passion and have the same vision as you do. They will definitely be happy to buy off the company from you if they have enough resources to do so. This may also include your customers, children, friends, or other family members. The reason it would be better to sell it off to someone who has been working in the business is that they know the business runs, what are its requirements, and what are its weaknesses. This will help the business in not having to start from square one and it can take off from where it had been present previously.

When you leave the business in the care of your family you will have to make sure to see whether your family is functional. Leaving the business amongst several children can prove disastrous as all of them might fight for a share of the business. This will lead the business to a slow decline without really experiencing any sort of growth. If you decide on that route then you will have to carefully plan the entire thing so as to avoid any tussle between the family members.

Pros

You will not have to go through a tedious and lengthy process of searching for the right person and then trial testing them to see if they are the right fit for the business. This takes way too much time and resources all of which are bad for the growth of the business. With a person of whom you know, you will know how the person is and what they are capable of, whether they are in it for the money or do they genuinely wish to see their business thrive. You will be familiar with their work ethic which will help define your search even better.

The person who has taken over the business from you is highly likely to be someone who believes in the same cause as you. This means that they will keep intact the main vision and mission of the business even if they make certain changes upon their appointment. When a business has been functioning for quite a long time they tend to develop a certain brand image that the customer becomes aware of and loyal to. If the vision of the business changes it can have an impact on the brand image or the new owner may try to change the overall brand image. Either way, it has a serious effect on the customer base of the business. They may end up losing them and will have to reevaluate their new customer base again and devise what sort of marketing campaigns and product variations to target them.

If a manager or director from your previous team steps into the role of being the entrepreneur they will work with the benefit of the company in mind since that is what brought them into the project in the first place.

Cons

You might be a bit too generous when you find out that a person from your circle is taking over the business that you might leave way too much money on the table. This will leave far less with you and far too much with them.

Your friend or family member might discover that you left far too much to be paid in taxes and they might get riddles in that issue which will cause them to dedicate far less time to the business though it would need ample of time, since it was already in a decline, and a new authority would mean significant changes. This could lead to strain in your friendship with them.

Leaving the business to one child or family member can bring about a lot of animosity amongst the members and they will be spending the rest of their lives brewing in jealousy. This would also lead to poor decisions being made on behalf of the business which will lead the business to a further decline.

Acquisition

This is when the owner of the business sells the firm to someone else in the same industry. The best thing about this is that the business has a high chance of thriving since the company of the same industry is taking over. The owner of the acquiring company will know full well what to do to grow the new business.

Pros

If you find a good acquirer then they may a lot more than what your business is actually worth. This will depend on: who the acquirer is, how much your business is producing, what the resources within it are worth, etc.

This can work in your favor on an even greater level when there is a bidding war between different companies about who will get to acquire your business. This way you can drive up the sales price as much as you want.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *