When it comes to owning a business, the priority lies in making the company as successful as possible. That sounds like a pretty good strategy, right? The last thing you want to think about, as a business owner, is planning your business exit strategy, since concentration is placed so heavily on growing the business presently.
In fact, over 60% of business owners don’t have an exit plan in place at all and aren’t even working on one, according to a 2014 study of small business owners that have been in business for an average of 18 years. A very small percentage of business owners have started working on a plan, but haven’t finished it. Only 24% of business owners surveyed have put a formal exit strategy in place.
The most successful exits happen when there has been a considerable amount of planning in advance. Exit strategies are vital for a planned succession or transfer of the business when it comes time to retire. It is also important for business owners to make plans for the business when faced with unexpected financial hardship, disability, or even death.
What Exit Options Are Available?
The following are the most common exit strategies for business owners:
Mergers and Acquisitions (M&A)
Simply put, mergers bring separate companies together to form a larger company. The two companies are generally similar in size, type, and provide generally the same product or service. On the other hand, many acquisitions involve a larger company buying and assuming control of a smaller target company. This can be beneficial to the acquiring company’s growth strategy as a way of enhancing revenue rather than attempting to expand within and create new products.
Selling Your Business
Business owners might prefer to sell to someone in their own network, such as a current employee or an investor looking to diversify. If selling your business is the best exit strategy for you, be sure to work with an attorney to write up a sales agreement that includes all the terms of the purchase, such as assets being sold, inventory included in the sale, contingencies, and fees, to name a few.
Business owners might choose to transfer their ownership rights to another entity. In most cases, this involves the business owner transferring ownership to a family member or someone who has experience in the company and possesses a desire to have it continue. It is important to discuss this plan with a tax specialist since tax implications are involved with a transfer of ownership.
This might be the best option for a business owner who is unable to transfer ownership, merge with another business, or sell. This refers to the process of converting assets into cash by selling them in order to pay off debts associated with the business. In order to get the maximum return for your assets, it is important to work with a professional who can handle the sale for you.
How Do I Put An Exit Strategy In Place?
A formal business plan, which outlines your business goals and the resources needed to make your goals a reality, should include an exit strategy. It is a good idea to have your attorney look over your plan to ensure you didn’t leave any important details out.
In addition to writing up a business plan, there are other procedures that need to take place when you officially leave your business. Refer to the IRS website for information on what forms to file and how to handle the extra revenue received or any expenses you incur from exiting your business.