In a management buyout, the original owners also generally will receive liquidity over a period of time. Most owners do not have an exit strategy in place because people who run businesses tend to focus a majority of their efforts on being in the game or competing in their industry. Talk with your private equity partner, as well as with any commercial lenders, investment bankers, or other financial professionals, about trends in the marketplace.
The disadvantage of this exit strategy is that "you are likely to lose operating control," he adds. The exit is a process, not an event. When owners follow these steps in order, they will crystallize their goalsdetermine whether they are ready, and pinpoint the best option and valuation for their situation.
Consider your future role in the business. A Look at Your Options Before you can choose your exit strategy, it is important to understand the basic characteristics of each option.
They want to stay small for perpetuity. When working with a client, we will then discuss the value that the owner can expect to receive based on the exit option they choose. In a strategic acquisition, however, the acquirer may replace you and your team with its own people.
The range of exit strategies includes taking the company public through an initial public offering IPOselling the company to a strategic acquirer, or recapitalizing and selling the firm to the management team, also known as a management buyout.
There are also transition managers whose role is to assist sellers with their business exit strategies. Does the owner make all critical strategic and operational decisions alone, or is there a strong management team in place?
Most owners understand the logic of planning for an exit, but typically put it off to some unknown point in the future. Ideally, an exit strategy is planned at the outset of a business, although because businesses are so fluid, it can be difficult to know what the final version of the business will look like.
Once you know whether your company will be attractive to institutional investors, or whether strategic buyers are actively looking for companies like yours, consider the steps listed above, as well as the price.
The private capital markets have changed substantially in the past 30 years, offering transfer alternatives that did not even exist when most owners started their companies. The following are some of the things to consider when choosing an exit strategy: Initially, the founder s own percent of the business.
In those periods you either see companies waiting for the market to return or selling to a strategic or financial acquirer. If they take on investment over time from venture capitalists, angel investors, equity investors, or individuals, they usually give up a portion of the company, or shares, and those shareholders will have a say in any potential exit strategy.
For a trade that meets its profit target, it could immediately be liquidated or a trailing stop could be employed in an attempt to extract more profit.
The sooner you start, the more rewarding your eventual exit is likely to be. The appeal of a given exit strategy will depend on market conditions, as well; for example, an IPO may not be the best exit strategy during a recession, and a management buyout may not be attractive to a buyer when interest rates are high.
If you accept outside investment, you essentially take on partners, and those partners at some point are going to want liquidity.
In an IPO, for instance, your shares likely will be subject to a share lock-up agreement, which means you will not be able to sell your shares -- even after the IPO -- for a period of time, typically six months. Many private companies begin working toward these standards early on -- establishing an independent board, arranging for an independent audit, and upgrading their systems and reporting to required levels.
A strategic acquisition can be an excellent solution for companies that are struggling with succession-planning issues, while an IPO or a management buyout will work more effectively for teams that want to stay in charge.
The choice of exit plan can influence business development decisions. You and your management team typically remain in place for a period of years, your investors and managers may be able to sell some stock, and your company continues to operate much as it has in the past.
We offer a free customized readiness report for those who are thinking about selling. Most owners who decide to do this level of planning work with professional advisers to get their plan in written form and to have someone hold them accountable as they continue to advance toward their goals.
In most cases, if owners make the investment of time, they will be rewarded for it. The best type of exit strategy also depends on business type and size. Public market investors generally want to understand your company as a whole -- what your main businesses are, what your prospects for growth are -- while strategic buyers may be more interested in specific parts of your company that are complementary.
Consider the impact of Sarbanes-Oxley.What is an 'Exit Strategy' An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist or business owner to liquidate a. business - Exit Strategies for Your Business - mint-body.com you have to make sure you have an exit strategy, a way to get the money back out.
For example, a high salary is taxed as. Sarrica's Market gourmet food store business plan exit strategy. Sarrica's Market sells imported and gourmet foods to Moab, Utah's rural residents and tourists/5(34).
John Leonetti: An exit strategy is a plan, ideally in writing, for an owner’s eventual transfer of the business to another owner. Most owners do not have an exit strategy in place because people who run businesses tend to focus a majority of their efforts on being in the game or competing in their industry.
Firm Gains > Sell a Business > The Best Exit Strategy A strong business exit strategy is the foundation of a successful sale For many business owners, selling a company is the culmination of many years of hard work and commitment.
When you need to decide on an exit strategy for your business, here are factors to consider and tips for choosing the one that's best for you.Download