There are many reasons that owners decide to sell their businesses, whether it’s burnout, divorce, decline, the desire to pursue a new challenge or retirement, whatever your reason may be, the first thing that you need to do is determine if your business is saleable and if it is, what the market value of that business is.
While you may be wondering, “how do I exit my business”, the question that you are really asking is, “what would a willing buyer most likely pay to purchase my company?” The amount a buyer is willing to pay for your business will all come down to two things, return-on-investment (ROI) and relative risk.
In this article, we will be discussing 4 different exit strategies for when it’s time to leave your business so that you can be prepared with the knowledge in hand, to successfully develop an exit strategy and sell your business.
1. Liquidation
Not everything goes as planned when you own a business. It can become unprofitable, you have debts to pay or the workload is affecting your mental health. The fastest way to turn assets into cash is by liquidating your business.
However, liquidation isn’t all that desirable when you consider that you usually only get cents on the dollar, not the full value of what the assets would have been valued at in a viable business.
2. Pass on your business to someone you know
Many people looking to retire and exit their business want to pass on their legacy to children or family members. This exit strategy is common and can be a straightforward transaction. However, many people fail to recognize the drawback that it poses.
With this strategy, the seller may not realize the full value of their business and instead, are passing on their wealth to friends or family with a discount. Not to mention that there are typically less than favourable terms that are paid out over a long period of time as the family member usually cannot afford the market price of the business, and is on the “forever” payment plan.
This greatly increases the seller’s risk exponentially as the new owner may not understand the business or can no longer pay them, which results in a life’s hard work being lost.
3. Sell your business in the open market
Buying an already established business is very desirable for entrepreneurs, especially since they don’t have to go through the process of starting up a new company. Selling your business on the open market is one of the best exit strategies because it exposes your business to a wide cross-section of potential buyers.
This will likely yield the best return and the best chance of realizing the maximum profit potential, but there are a lot of moving parts to this strategy which is why you should let your broker help as they will have the connections and expertise to take your business to the wider market.
However, like most exit strategies there can be a risk to selling your business in this way. When you sell your business on the open market you will have an increased potential of a confidentiality breach, which poses a risk of disruption to staff and clients of the seller company.
4. Sell to another business
In some instances, a competitor or similar business will want to acquire your company. This is because businesses want to grow exponentially and in a competitive market, acquisitions may be the only way to experience significant growth.
The benefit of this company exit strategy is that the strategic buyer will already understand the target business, which will make due diligence easier, and they will often pay a premium for a good business, as they already recognize its value.
Occasionally, the business owner may be offered a position within the new company. This can be tricky and detail-oriented but can be made easier with the support of a broker.
When deciding on a deal with a competitor, confidential proprietary information is often exchanged and there is always a small risk that this may be used to the competitor’s advantage, especially if the deal falls through.
Here at insidevancity, we can help you exit your business with a complimentary and confidential discussion on the best way to take your business to the market or divest. Not every exit strategy will work for your company and you may be feeling confused and unsure of your next steps. Insidevancity, can you give you professional guidance during the sale of your business, so that you have the best chance at a successful change of ownership possible.
