Does Your Small Business Have an Exit Strategy?
When you were little, you might have thought to yourself, “I want to be a firefighter,” “I want to be a doctor” or maybe even “I want to own my own business.” And that’s typically where the dream would end.
After all, the dream is about the achievement … not what happens once you’re done with it.
But as you grow, you realize that building and owning a small business doesn’t necessarily have to be forever. It can be one of several goals you want to reach. In fact, you might just be one of those entrepreneurs who simply loves to build something, sell it off and start all over again.
If that’s the case, you’ll need a business exit strategy.
Other situations also call for an exit strategy, too — really, any situation in which you find yourself wanting to sell, merge or otherwise part ways with your company. Perhaps you’ve reached retirement age and are ready to pass the business on. In some cases, if the business simply isn’t working out, a sound business exit strategy can at least help you limit your losses on your way out.
Read on as we talk about a few exit strategies and what situations they’re right for.
The Family Handoff
This is literally the American dream for thousands upon thousands of people. You build a business over the years, and eventually hand it off to your heirs.
It’s a benevolent dream, and it does have its perks. In ideal situations, you’re handing the business off to a family member who understands it thanks to years of work, and who you’ve had plenty of time grooming for the role. This kind of setup also allows you to set your own transition pace and even stay involved with the business should you choose.
The downside? Depending on how many of your family members were deeply entrenched in the business to begin with, choosing to hand it off to one of several deserving people could cause a rift. There’s also an opposite danger: You get to retirement age and no one in your family really has an interest in the business, forcing you to find another way out.
Mergers and Acquisitions (M&A)
Acquisitions (and to a lesser extent, mergers) are among the most desired ways to “cash out.” You seek out a buyer – someone that actually wants your business – negotiate a price that’s acceptable to you, then hand over the reins and walk away. Of course, if you still want to be involved, you might instead opt for a merger, where you negotiate some sort of payoff while still keeping a hand on the steering wheel.
The M&A route has a couple of upsides. For one, if you somehow manage to get yourself into a bidding war, you could fetch far more in value than you otherwise might have been able to. Similarly, you can simply get a good deal by simply being of high strategic worth to another company.
Of course, depending on how the deal is structured, any traces of your business might be erased after the sale – including your employees’ jobs. In a merger, you might find after you’ve been “digested” that the two businesses have clashing cultures that make it miserable to remain there. Also, M&A isn’t an easy exit. Mergers and acquisitions are difficult to finalize; it’s not uncommon to spend months on a deal only to have it fall apart before it reaches the finish line.
Initial Public Offerings (IPOs)
IPOs sound impressive and exciting. You’ve built your company to a size worthy of trading on the public markets, and suddenly investors all over the world are interested in buying stakes in your company.
If you can pull off an IPO, you’re not only likely to be rich, but you’ll also enjoy at least a small amount of fame for it.
But they’re oh so rare. Here’s some context: The SBA said as of 2019, U.S. boasted nearly 31 million small businesses – and those companies made up 99.9% of American businesses. That same year, 235 companies went public on U.S. markets.
That’s less than 1/10,000th of a percent.
You also will face far more accounting and financial scrutiny than most businesses face. Your wealth will be every bit as much as tied to the health of the stock market as the health of your actual business. And you’ll spend much of your time not running your company, but instead convincing investors that your company’s shares are worth holding.
What’s Your Exit Strategy?
These divestment types are just a few of the way small business owners can walk away from their companies. But how do you know which one is right for you? And once you’ve decided that, how do you go about executing your exit?
McManamon & Co. serves small- and midsized businesses in a number of ways, including assisting companies with the mergers-and-acquisition process, providing business valuations and offering general consulting services in which we can discuss which kind of exit best suits your needs.
We’re here for every stage of a small business’s lifecycle, including the very end. Call us at 440.892.8900, or contact us online, to learn more about how we can educate your exit strategy.
| Posted in McManamon & Co., mergers & acquisitions, Retirement Planning, small business