If you’re thinking ahead to the day when you’ll no longer run your business, think about these five exit strategies now so you’ll be prepared for your future. Entrepreneurs live for the struggle of launching their business. But one thing they often forget is that decisions made on day one can have huge implications down the road. You see, it’s not enough to build a business worth a fortune; you have to make sure you have an exit strategy, a way to get the money back out. Here are five primary exit strategies for those of you who like to plan ahead and for those of you who don’t, but should.
“One thing they often forget is that decisions made on day one can have huge implications down the road.”
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- Merger & Acquisitions (M&A). This normally means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills and can save resources by combining. For bigger companies, it’s a more efficient and quicker way to grow their revenue than creating new products organically.
- Initial Public Offering (IPO). This used to be the preferred mode and the quick way riches. But since the Internet bubble burst in the year 2000, the IPO rate has declined every year until 2010 and is now at about 15%. I don’t recommend this approach to startups these days because shareholders are demanding and liability concerns are high.
- Sell To A Friendly. This is not an M&A, since it’s not combining two entities into one. Yet it’s a great way to “cash out” so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again. The ideal buyer is someone who has more skills and interest on the operational side of the business and can scale it.
- Hand The Reins and Keep Collecting. Make it your cash cow. If you are in a stable, secure marketplace with a business that has a steady revenue stream, find someone you trust to run the business for you, while you use the remaining cash to develop your next great idea. You retain ownership and enjoy the annuity, but cash cows tend to need constant feeding to stay healthy.
- Even lifetime entrepreneurs can decide that enough is enough. One often-overlooked exit strategy is simply to shutdown, close the business doors, and liquidate.
To some, an exit strategy sounds negative, when in actuality, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows you to run your startup and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers you target. Planning for your exit may seem premature, but the things you think about today can have a real impact on where you end up.
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