Do You Have an Exit Strategy? Why You Should.

by Justin Grensing, Esq., MBA

For many entrepreneurs, starting and running their own business is the culmination of their life’s ambition; the chance to be their own boss while doing what they love. But as an entrepreneur, is your goal really to continue your business for the rest of your life? Or to pass your business on to the next generation of your family? Or to simply let it fade into oblivion? The point is, unless you’ve taken the time to specifically think about the future of your organization beyond you, you really don’t have an exit strategy.

Writing for Entrepreneur, Stever Robbins discusses several common exit strategies. We just touch on a couple of them with a quick overview here, but Robbins goes into a bit more detail and suggests pros and cons of these and more.

Acquisition

Many companies start up with the sole desire to be acquired by a larger fish at some point in the future. This is a classic business model for many apps, for example. The idea is to get a concept off the ground, demonstrate its potential and then sell it to a larger, more established company that can take it to the next level, while you retire in luxury.

Cash Cow

“One favorite exit strategy of some forward-thinking business owners is simply to bleed the company dry on a daily basis,” says Robbins. He isn’t talking about running the company into the ground, but taking as much value out as possible during the life of the company in the form of self-paid salaries, bonuses, etc.

Liquidation

Unlike selling a business, liquidation refers to selling the pieces of the business. For example, instead of selling a restaurant and bakery, you might sell tables, chairs, ovens and kitchen utensils.

IPO

An initial public offering, or IPO, is the process of taking a comping public, as in publicly traded on an exchange. Robbins notes that the complexity and mixed track records of IPOs typically make this an unattractive option. “There are millions of companies in the U.S., and only about 7,000 of those are public,” he points out.

Starting your own business may be a dream come true, but a business is primarily a means to make money, and that’s where the exit strategy comes in. There are many options to consider, and even if you plan to run your business for years and pass it on to your children and grandchildren, it doesn’t hurt to consider possible exit strategies from the very beginning.

 

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