The time to consider the future of your company is now, before the future becomes the present. There’s more than just one exit strategy. In fact, there are dozens, but most fall into one of these categories. Consider these options for the future of your business.
The Lifestyle Company
This strategy isn’t much of an exit at all. Instead, it handsomely compensates owners who remain at the company’s helm. This may include large bonuses and a massive salary that are untied to the company’s success. This works well for owners who do not want to plan a complicated exit, and offers significant compensation to those for whom their bottom line is a key consideration.
If you adopt this strategy, the money you take will no longer grow and operate your company. Its long-term success may suffer. Reduce your dependence on investors as much as possible, while structuring the company in a way that allows you to draw cash as needed. The way you withdraw cash may also have problematic tax implications.
When you liquidate, you simply close the business when you’re ready. Few owners actively seek this option, but it is common—especially in retail. Remember that if you pursue this route, the proceeds of the sale must go first to creditors. An advantage is that it is simple, with no buyers to court, no negotiations, and no complicated ownership transfers. The disadvantage is a significantly reduced potential to earn money from the business’s sale. Shareholders may feel abandoned, or like you left too much money on the table. Customers may be angry, and employees may be left without jobs.
Continuing a Legacy
A buyout to a family member, employee, customer or other interested party might be ideal. If you can finance the sale, the buyer can pay it off over time. This option requires less due diligence than if an outsider finances the deal. You will also see your legacy preserved. But when you pass the company down to family members, there may be disagreements over the business. You might leave too much money on the table when you work with a familiar buyer. And if there are challenges after the purchase, the purchaser may come to you seeking help.
Acquisition or Merger
This is the most common exit strategy, and is often the most desirable. You’ll find a buyer and negotiate terms. The negotiation process, not industry factors, determines the business’s ultimate value. If the buyer perceives significant value, you might get more than your company is otherwise worth. You could even see prices soar thanks to a bidding war. Yet a bad fit can prove disastrous. Negotiations can be challenging and tedious, and you may find yourself changing your company to meet buyer demands. If the sale falls through, a future sale could prove more difficult.
This strategy garners plenty of attention, but only a very small number of enterprises ever go public. Most are spin-offs of larger companies, not the brainchild of entrepreneurs. For many owners, this is a lifelong dream. It’s also a risky one that requires winning the favor of Wall Street analysts. It’s expensive and time consuming, and the results might not be as anticipated. If going public fails, you may lose lots of money. Even when going public succeeds, the company’s value is tied to analysts’ perceptions. In some businesses, the regulatory demands can be onerous, and may even preclude going public.