What Type of Exit Strategy is Best Suited to you?

Jan Murray / February 21, 2019

Tags: Blog



There are a number of different ways an individual can exit their business. Some of them are planned, others – such as liquidation or illness – unpredictable. The type of Exit Strategy you choose will depend on various factors. These include why you want to exit and what you want the business to do next. Here are some of the main types of Exit Strategy business owners use:

IPO

An Initial Public Offering (IPO) is when you opt to sell part of your company, in the form of stocks and shares, to the general public. It can be beneficial in that it generates a large amount of cash in a short space of time. However, it’s mostly reserved for larger firms (such as the recent big IT Silicon Valley offerings) since it can cost a huge amount of cash to become listed on the stock exchange in the first place.

Early retiral

Individuals and small companies often have this type of strategy. It’s when they set out to make a profit, without any intention of growth. It’s all about maximising income for the owner. This means keeping expenses down and not ploughing profits back into the business. The reason for the exit tends to be when the company isn’t really making much profit for the owner to justify continuing.

Passing on to family or another buyer

This is a ‘feel good’ type of exit – especially if you pass the business on to a son or daughter, niece/nephew etc. Or, it could be that you allow your existing employees offer to buy you out. You leave contented, wealthy and with the knowledge that the business you spent time and sweat building up, continues in your absence.

Acquisition

The dream of many a young start-up, being bought over by a larger company in the same sector and being handed thousands of pounds (or even millions) for the pleasure is, understandably, not to be sniffed at. However, it does mean that, as the owner, you lose control of your own company. You may still be running it on a daily basis, but you don’t make the big decisions – these are left to the parent company – even if they prove damaging for the acquired firm. Of course, it may just be that you want to be completely ‘hands-off’ and simply sell with no further involvement in the company whatsoever.

Liquidation

Going potentially bankrupt and having to sell the company to avoid it, isn’t something any new business owner wants to think about. But there’s no denying it’s a possibility. And certainly, during the 2007 recession, it’s something that millions of small and medium-sized businesses were forced to consider. Liquidation is when any assets are reduced in price, in order to sell them quickly to pay off creditor debts. Any money remaining is given to the owner (or shared if there is more than one company director).

Of course, it could be that a combination of strategies to exit suits an individual better. This can be explained easily in terms of property investment. As a landlord of around ten buy to let properties you could, for instance, allow another company to acquire, say, five of those properties. At the same time, you could be planning for early retirement by using the money from the sale of those properties to pay off the mortgages on the remaining five properties. You could then happily exist on the rental income from the properties your company still owns.

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