One of the common conversations I have with the people I work with is about their business or startup. How they came up with the idea in the first place, why they chose to start it in one place versus another, the struggles, losses and victories they have experienced as they were building it, their vision for the future as they continue to scale.
The entrepreneurs, founders and business owners I have had the pleasure of working with are always excited and happy to talk about all this, even the struggles, because they are constantly learning and improving. This fuels them and their business, ultimately helping them solve more of the problems they have identified.
The question and subsequent answer that does not flow as freely as the rest:
What Is Your Exit Strategy?
Although most people in the business and startup space freely use the term exit strategy in conversation, I am not convinced many of them really want to think about it until “later.” Who could blame them? They are so laser-focused on building the business, dealing with the day-by-day if not minute-by-minute fires, the hiring and firing of people, and let’s not forget always looking for more money and customers!
I would still argue that this question, “What is my exit strategy?” should be a priority as early on in your business venture as possible. A motto and philosophy I live by in my personal life, and in planning with my clients, is to plan for the worst and hope for the best. In doing so I have found that we can think more clearly knowing we have protected the downside, thus allowing us to focus more on the upside. (For related reading, see: Top Exit Strategy Tips for Small Businesses.)
So, what is your exit strategy? The following are some ways you can unlock the value of your business and turn it into money. Don’t get me wrong, money is certainly, in my opinion, not the end all and be all, but it is one of the strongest tools we have available to us. Thus, having a plan on how to convert your business equity into financial capital (cash) is very important.
Types of Exits – How to Make Money Selling Your Business
Although these are some of the more common types of exits, there are many nuances and ways to exit a business. Make sure to have a strong team in place when planning your exit.
- Mergers and acquisitions
- ESOP: Selling your equity interest to your employees
- Initial Public Offering (IPO)
- Close down: Closing the doors due to a failing business or not being able to find a seller
- Partial equity liquidation due to follow on investments by venture capital, strategic partners, etc.
- Sell/transfer to the next generation
Regardless of how you exit your business, you are essentially unlocking the value you have worked so hard for into a liquid asset that you can use for the next stage of your life. Consider your overall asset allocation, the make-up of all the investments and assets you own. Like most business owners, the majority of your asset allocation is in one asset, your business, which happens to be, in most cases, illiquid and risky.
Turning this risky, illiquid asset into a pile of cash is much easier said than done. Having a plan on how, how much, and when you want to exit your business is, in my experience, best done from the onset of your venture. How much money do you need to live the rest of your life the way you want to? What is your primary objective in building your business, to scale and sell it, or to run a large corporation? There is no right answer, but talking about and starting to answer these questions can make a world of difference. (For related reading, see: Top Retirement Strategies: Small Business Owners.)
Have a Team in Place to Help You Exit
The team I mentioned earlier should consist of people like an attorney (both business and estate), tax expert, financial planner, insurance agent and perhaps even a life coach or someone like that, to talk about all the non-business changes you will experience. Like most business owners, the business is highly linked to your identity. Selling and exiting your business can have a profound impact on this identity and should certainly be thought about. It has even been reported in a study done by Capgemini that a large percentage of business owners don’t have an exit strategy in place because they associate selling their business with quitting, retiring, or simply as an end of life event. This is certainly understandable, yet not having a plan in place can be so much more stressful and devastating, especially to those who are to take the reins or inherit the wealth you have created.
Yes, starting, scaling, running and now exiting your business is a ton of work. But as with most things in life, if done well and planned for, the things we put our heart and soul into tend to work out better than if we just shoot from the hip.
(For more from this author, see: Work at a Startup? Here's How to Plan Your Finances.)