When you start a business, all your blood and sweat go into developing growth from a fledgling venture to a high performing enterprise. After all the late nights and early morning you’ve put into making it uniquely remarkable--and uniquely yours--it’s tough to think about how you’ll eventually make your exit.
Whether you want to go public, allow management to buy the company out, or sell it to another firm or family member, considering these five points will help you start figuring out your strategy.
1. Level of Liquidity
If you haven’t thought much about an exit strategy, it’s easy to accept the passing notion that you’ll simply sell your company and get the cash for it. But it often isn’t that simple.
- In an Initial Public Offering (IPO) you might not be allowed to sell your shares for a period of time under a share lock-up agreement.
- An acquisition is your best bet for a straightforward payment. But an earn out period of several years can defer a percentage of the purchase price.
- Management buyouts also usually mean receiving money over time.
Having an idea of your options now will help you start gearing your company toward your preferred exit strategy.
2. Your Preferred Role
How much involvement do you want when the deal is done? If you don’t want the roles of you and your team to change much after the transaction is over, an IPO or management buyout would make sense.
But if you’re ready to walk away or if you’re having succession planning problems, a strategic acquisition could be a fitting option as the acquiring company often will replace your team with its own staff. Just be sure you’re really ready to move on to your next big idea if you go with this option.
3. Type of Buyer
After you’ve spent so much of your time, resources, and energy on this business, you want whoever has it next to keep it thriving. That’s why it’s so important to know what kind of buyer you’d like to hand your company off to.
The choice will depend largely on your goals. Are you looking for a lucrative buyout? Find a strategic buyer. Or do you want someone who will let your business live on with it’s own identity? A search fund could be ideal. No matter who it is, figuring out who they are now will let you start planning to look for them sooner rather than later.
4. The State of Your Company
Whether you’ve decided when in the future you’d be ready to sell or if you’re looking to exit now, it’s time to work on getting your company in tip top shape. This means assembling a quality team of advisors, taking stock of your business and what you really have to sell, and working on an action plan to enhance the value of your business immediately. Also look into whether you’ll need to upgrade your financial systems and processes and gather or update documentation.
Even when all this is in order, you might choose to wait on the right market conditions so that you can have the most optimal exit possible.
5. The Timing
Even with all the planning in the world, sometimes the time to execute your exit strategy is made by uncontrollable circumstances like an illness or disability, a significant shift in market conditions leading to decreased lead generation, or even an offer you can’t refuse. But otherwise, you’ll get to choose when you exit, and getting the timing right can make a difference in how the transaction plays out.
The right time might be when market conditions are strong and you’re ready to sell, the opportunities for your company are constricting, or you’re personally ready to move on. Thinking about your ideal selling conditions will allow you to keep an eye out for them should they arise.
Knowing where you want to go with your company from the beginning will help you make the most graceful and profitable exit possible when the right situation comes along. Making decisions concerning these points will lead you toward making a detailed exit strategy now so that you won’t be scrambling for a plan when the time is right to reap the rewards of all your hard work.