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Home  Merger and Acquisition Discover the Best and Worst Business Exit Strategies
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Discover the Best and Worst Business Exit Strategies |
Generating value in a business is a desirable objective; however, extracting the value for the benefit of the business owner can be undertaken in different ways. Plan your desired exit strategy.
A new business start up is launched and probably the last thought on the mind of the new business owner is planning for exit.
Whilst it may seem an inappropriate time to consider such an action, beware, it may be that should the business fail; the business exit is forced upon the owner in an unplanned and painful manner.
Generating value in a business is a desirable objective; however, extracting the value for the benefit of the business owner can be undertaken in different ways. Plan your desired option.
Forced Unplanned Exit
It would seem sensible to at least give thought to a fall back plan from the start of the life of a business.
Should the business encounter trading difficulties such plans may provide the necessary focus to avoid a catastrophic failure.
An unplanned forced exit from a business is the least desirable, and one that with professional advice being sought at an early stage may be avoided. The value of a business in such circumstances will be small if anything at all, and the ambition and enthusiasm of the business owner; so much in evidence at the commencement of the business will not be rewarded.
How does the business owner avoid an unplanned business exit?
In addition to ensuring positive cash flow exists all decisions from day one of the business should be carefully considered and taken only if they contribute to achieving the business and personal goals of the business owner. During the early stages of a business life the infrastructure is established, and if wrong decisions are taken at this time they may require protracted and costly amendment later.
If an exit strategy or goals have been set it would indicate some planning has been undertaken. Businesses will rarely plan for failure and to achieve success it will be necessary to remain focused on all targets throughout all decision making processes. Do not deviate from your plans unless for very good reasons and an unplanned business exit will be avoided.
Extravagance - Live Beyond the Means
Occasionally a business owner may seek to enjoy the ‘good life' before the business results can support such a lifestyle. Expensive cars, luxurious holidays, private schooling are typical extravagances that may bleed the business of much needed cash at a time when re-investment in the business may be desirable.
Just ‘keeping up appearances' may be enjoyable for a short time but in the long term it usually comes at a significant cost in terms of money and social standing. Other consequences may arise should such actions be proved fraudulent.
Large Rewards
The business owner may take actions to pay himself a large salary, a bonus or declare dividends on a regular basis. If controlled this approach may not result in the business being traded at a loss. However, the planned regular depletion of cash from the business may restrict future growth through a lack of re-investment and the tax implications of such large rewards may not be attractive.
In such instances the owner may choose for the business to remain small but to provide a very comfortable and lawful lifestyle, and not to expect a large settlement when the business is eventually disposed of.
Liquidate the Company
Simply close the doors, sell the assets, collect the receivable balances and pay the creditors. Whatever is left is distributed to the owner or shareholders. However, the goodwill value attached to the business will be lost.
Sell the Business
The business may simply be sold to a friendly buyer. Typically this may take the form of a trade or asset sale to a third party, employees or maybe to family members. This approach is usually quicker, maybe with less due diligence, but perhaps difficult for the owner to divorce himself from particularly if sold to family.
Hostile Acquisition
A suitor may announce an interest in the business and force the owner to consider an acquisition proposal. Without doubt some distraction within the business will be encountered and if protracted could have a detrimental impact. This may only serve to undermine the true value of the company and through duress force the owner to consider a sale.
Floatation
An Initial Public Offering (IPO) may be another route to exit the business, but perhaps in exceptional circumstances. Shares may be offered by the owner in the company to financial institutions and/or members of the public. This may raise capital for the business or provide the opportunity for the owner to extract cash value from the business.
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