Starting a new business requires blood, sweat, and tears. You build a company from scratch and work towards making it successful. But there’s an end to everything. Perhaps you want to do something else or retire with good money. Either way, you need a plan. Selling a business might seem like an easy task but it isn’t. You have to make sure that you leave with a fair price for your business. That’s why you need an exit strategy.
The right strategy constitutes the right time to sell your business along with the right value. It allows you a path to follow when it comes to selling.
What is an exit strategy?
An exit strategy in a business is the owner’s strategic plan to sell his/her ownership of a company. An exit strategy allows an entrepreneur to reduce or liquidate his stakes if the business is in profit. If the business is not successful, an exit plan allows the owner to limit losses.
An exit strategy may also be used, by venture capitalists, traders, etc to bring their cash out of an investment. Some business owners who existed from a business are Travis Kalanick, founder of Uber exited in 2017, Jan Koum, one of the founders of WhatsApp, who exited in 2018.
Why do you need an exit strategy?
In order to safeguard your interests and profits, you need an exit strategy. The valuation of your company plays an important role when it comes to selling a company. It can be lower than your expectations in the private market. Strategists make it easy for you to sell your business for the best possible price.
You can create an exit strategy early on in the business if you’re sure that you’ll be selling it in the future. An early plan can help you to have a clear vision about what you want to sell for. The benefits of planning an exit strategy are as follows:
- Enhances the value of the business: Early planning of exit strategy enhances the company’s value for the owner. As it will guide them in reaching the predetermined and preferred target.
- Flexible terms and conditions: When you create a strategy at the initial stage, you attain the liberty to adjust it as per the situations prevailing in your business. It also provides guidance and benchmarks to use at unexpected events. For example, sudden death, divorce, relocation, etc. If the exit plan is ready, the business can move forward without losing much value. To make a strong strategy it is better to consult with a professional advisor, business brokers, or attorneys.
- Makes you prepare for the endgame: With no strategy, the business owner may take wrong or inappropriate decisions. That decision may hamper the company and lead to loss. On the other hand, if the business is ready with a long-term strategy, and the end game is known then, it will be easier for the owner to take any further decisions.
Three ways to sell your business
Here are three ways you can sell your business. But ultimately, it is on you to choose one, depending on your financial, personal, and business goals. You can sell it to:
- Someone you know: Selling the business to someone you know is like keeping a profitable business close to yourself. Remember, even if you are selling to a known person, it’s important to follow a strategy. This idea mostly prevails in the family when they want to transfer their company legacy to their child or family. This decision holds some merits.For instance, the person you are passing the business has all the required knowledge about how to run the company. But the demerit is that if you pass the business to a known person without knowing his capabilities, it can lead to unnecessary financial loss.
- Another business: This is a great option. It can be a fascinating option for start-ups and entrepreneurs. You will be selling your company to someone who may have plans to expand it further. Meta bought WhatsApp and now it’s greater than even. The greatest advantage here is gaining profit by controlling the price over negotiation. The demerit of this option is that it may consume more time than estimated.
- Open market: Here, the value of a company depends on its reputation in the market. You’re putting the company up for scrutiny but can get a great price if it holds true merit.
Exit strategies are important if you want to make the most out of your business. It’s understandable that you’ve put your heart and soul into building something. It only makes sense to get the best value for it. An effective strategy allows you to plan and set goals for what you want. All you need to do is execute it well and you’ll bag a good deal in no time.