What is exit strategy ?
For those who are entrepreneur, bussiness man or having your own company, do you guys actually ever heard or know what is Exit Strategy ? If you guys don’t especially for the ‘rookie’ entrepreneur, you need to read this article.
- Exit strategy can be defined as the planned exit of the owner from their business.
For your business, you must need a plan on how you could get into the business, but did you know that you also need a plan to get out from it? If you thought on selling or maybe dispose a business, you will need a good strategy and careful implementation for this. As for the facts, starting a business is way more complicated than you thought. As example, when there’s only one way to start company, at least there are 3 essential methods for the entrepreneurs if they want to leave their business that they founded which are selling, merging and closing.
When the entrepreneur have come up to the decision to sell their business that they work up so hard, you must know that was not an easy decision for them. But, it is a good choice if it under some circumstances. Selling may be preferable to owning if:
- You are ready to retire and don’t have any heir to continue the company.
- Partners with the business is decide to dissolve the partnership.
- One of the owners dies or become disabled.
- You or another owner got divorced and need cash for a settlement.
- You want to do something more challenging, more fun and less stressful.
- You don’t have enough working capital to keep continue.
- The new company need new and fresh skills, new approach or resources that you can’t provide.
If you think that all the factors that indicate selling is a good choice, you should set the time for the sale so that you can get high prices. When sales are increasing and the profits are strong, you probably get the most for your company and also if you had unblemished history on your company’s performance, by all means you need to sell your company before any trouble strikes. Other factors that could affect the timing of a sale are:
- Bank financing
- Interest rate trends
- Changes in tax law
- General economic climate
To sell the business, usually the owners will have a contract with a professional broker to help them in this matter but you also can sell by your own. Plus, because of the awareness of relevant legal, tax and accounting considerations of using a broker is to help you protect your anonymity and confidentiality. A broker can become your ‘middle man’ by screening all the prospects and keep secretly the identity of the business owner from all except the qualified buyers.
Mostly, business buyer is someone like you who want to become a small business owners. But you also can transfer the ownership of a business to other business in a acquisition or merger. Business actually have more borrowing power than individuals and they willing to pay more than individuals. Businesses also tend to increase the chances your business will survive and to be more savvy than individuals. However, businesses can not move fast as individuals and it require you a year or maybe more to get your company ready to be merged or acquired. In that time, you will need to:
- Clear up the balance sheet
- Drop poorly performing products
- Terminate insiders deals, such as property the company is renting from you or family members.
- Trim any excessive fringe benefits.
- Make sure you’re paid up on all taxes.
- Have at least 2 year’s worth of audited financial statements.
Company that sees your business as a well fit with their own firm is the best candidate for a merger. If you have unique product or distribution channel, hey might as well willing to with a premium price. A poor merger prospect however, the only one who wants to put you out of business or only motivated by price and not interested in preserving the business.
The best, simple things that you can do are simply sell you inventory and fixtures, pay your creditors and employees, close the doors and walk away. If your business is failing, not valuable enough for anyone to acquire it or maybe the type of business that is not valuable without you personally operating it, the best choice is closing. If you do not have enough money although you has disposed your assets to pay for the workers, you just give what you have now and promise them that you will give the rest later. You can usually avoid legal wrangles if debts are in small amount.
Variations on this theme include making formal or informal arrangements to pay off your creditors, filing for voluntary liquidation, and declaring bankruptcy. Only bankruptcy is intended to give you a second chance while the others are almost certain to result in the end of your business.
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