Starting and running a business is often an exciting and fulfiling project. But that’s only if the conditions are skewed to favour your intentions. What if your business industry turns out to be an untameable beast? What if its finally time to fall back on an exit strategy?
The vitality of an exit strategy
A business exit strategy is like a shield and a sword. On the one hand, it may allow you to alleviate yourself from an increasingly tough situation and call it quits with minimal personal damage. Alternatively, it may allow you to pierce through new feats by optimising rare and lucrative opportunities. Irrespective of the personal underlying intention, a business exit strategy is arguably just as vital as a start-up strategy. In fact, the Commonwealth Bank Local Business Owner Report has found that up to 47% of small business owners now have an exit strategy. If more people are recognising the value of a back-up plan; then you should too.
Common exit strategies
Like good art, ‘good’ exit strategies are highly subjective and therefore, dependent on your personal values and priorities. Therefore, you can identify the most appropriate exit strategy by asking yourself whether you prefer a maximum return or a minimisation of losses. If you are reading this article because you are unsure of the available options, here are the most popular strategies.
1. Initial Public Offering (IPO)
An IPO is when you list your small business on the stock exchange and sell a portion of your business in exchange for money. This method is a viable avenue for rapidly accruing capital, but its benefits may not necessarily outweigh the potential downsides. Initiating an IPO requires you to carry the burden of expensive set-up costs. In addition, control over your company will be diluted by the distribution of share ownership.
2. Selling the Business
Deciding to sell your business is not always an indication of incompetent management or unfavourable industry forces. Rather, the decision may stem from the fact that you no longer wish to bear the risk. More business owners are recognising that the longer they remain in a business, the higher the chance of failure. Hence, business owners tend to take on risk at earlier stages of the business cycle as opposed to when it enters maturity. As a business develops, it generally accrues more value, meaning that any negative risk can impose significantly damaging losses. Minimisation of losses may be attractive to older business owners who no longer have years ahead of them to remedy any unwise business decisions. Selling a business often requires participation in an arduous and complicated process. It is therefore recommended that you consult a business purchase/sale lawyer before entering into a transaction.
3. Mergers and Acquisitions
Mergers and acquisitions often refer to the consolidation of various companies. However, there are notable differences between the two. A merger is when two separate companies combine to create one new company. Alternatively, an acquisition occurs when a larger company absorbs a smaller company. Mergers and acquisitions are a great exit strategy especially when your business offers a new product or service that is considered to be of high value. This is because there will be an ensuing price war among competitors looking to acquire your business. However, acquisitions often mean that you will be continually involved within the business post-acquisition. This may not be desirable if you are seeking a complete split. If you are seeking to acquire a detailed overview of the regulatory boundaries relating to mergers and acquisitions, a Mergers and Acquisitions Lawyer may be suitable for you.
Conclusion
Planning how to farewell your business is arguably just as crucial as planning how to get your business up and running. Having a contingency plan in place means that you can immediately take action to either mitigate excessive losses or cash in abnormally high returns.
