Does your business need a market exit strategy in place?
- Theme: Plan to start your business
For many people, starting up their own business is a dream, so why would you want to think about an exit from that dream? Well, put simply, there are a few extremely logical reasons as to why you need to prepare for the future.
The most important reason for preparing a market exit strategy is that your own, successful business is one of the biggest possible assets you could have.
You’ve invested time and money into its growth and have been able to depend on a regular salary and perhaps even a portion of the annual profits. So when the time comes to retire and move on to something new you’ll be in an excellent position to harvest additional wealth.
The case for planning your market exit strategy before you start your business
Setting up and growing your own business is, in the main, an incredibly fun time. It’s a whole new world of learning and discovery and subsequently it’s unsurprising why many entrepreneurs fail to step back and consider where they want their business to go in the long term.
It’s simply an essential plan to have in place. There’ll come a time when you walk away from the business and when you know where you ultimately want the business to end up, you’ll be much better prepared to make sound business decisions in line with your exit strategy.
Entrepreneurs thrive on the battle to launch and establish new businesses. So if you’ve spent a number of years cultivating a business to reach its full potential you’ll want to release capital from the business to invest into other avenues. That’s where a market exit strategy comes in.
Potential market exit strategies to consider
What are your options for an exit strategy from your business? Let’s take a look at the tactics you could consider:
- Initial Public Offering (IPO)
An IPO results in you selling off a percentage of your company in the public stock markets. Money can be raised by either issuing debt or equity to investors. Going ‘public’ opens many financial doors to business owners. Since the internet boom, start-ups have often gone down the IPO route in a bid to expand their businesses and secure major funding. In simplistic terms, an IPO is merely the process of selling stock in your company. Providing you can convince investors to purchase stock in your company you can raise considerable sums of money.
- Merger & Acquisition (M&A)
This process involves merging with a like-minded company or being bought out and acquired by a larger company, becoming an additional arm to their business offering. Company mergers can be highly effective if the merging company has skills, experience and a contacts book to complement your operations. For some business owners, merging is an easier way to increase revenue than creating new products organically.
- A direct sale to another individual
You could simply broker a deal with a suitable individual to sell the business directly to them. This is not strictly a merger or acquisition, as it wouldn’t be a process of amalgamating two companies into one. This is potentially one of the cleanest ways to exit your business: you get a fair value for the company, the investors get their share and you can move on – perhaps to start up a new venture all over again!
- Keep the company – but trust someone to run it for you
It might not make sense to simply sell up your business; particularly if it’s growing and prospering in a stable industry. If the business is providing a steady stream of revenue you could consider employing someone with the skills and integrity to run it for you while you take a step back and simply enjoy the profits by retaining majority ownership.
Sometimes even the most successful entrepreneurs have to take the decision that enough is enough. One market exit strategy that’s sometimes overlooked is to simply close and liquidate the business. It’s important to bear in mind that, as a business owner, if you liquidate a business, any proceeds from the assets must be used to repay any creditors first with the remaining – if any – funds being shared equally among shareholders. The pro for liquidation is that it’s a clean break: there’s no negotiations involved, nor is there any wrangling over transfer of control.
Ultimately, thinking back to the way you plan your business and get it off the ground, the way you grow it should be suitably allied with your exit strategy. Don’t consider an exit plan as planning for failure; think of it as succession planning to move on to the next chapter!
The key to any successful business is the ability to make well informed business decisions. To get a real picture of how your market sector is developing and stay abreast of key legislation affecting your business, sign up to the Business & IP Centre’s ‘The British Library for Business’ Mini Masterclass. The workshop will highlight and provide practical guidance in using key British Library sources to give you the confidence to make the right choices for your growing company.